Carmen Arguedas

Learning About Compliance Under Asymmetric Information

Over time, inspection agencies gather information about firms’ pollution levels and this information may allow agencies to differentiate their monitoring strategies in the future. If a firm is less successful than its peers in reducing emissions, it faces the risk of being targeted for increased inspections in the next period. This risk of stricter monitoring might induce high-abatement cost firms to mimic low-abatement cost firms by choosing lower emission levels, while the latter might try to avoid being mimicked. We explain firms’ compliance decisions and the inspection agencys monitoring strategy by means of a signaling game which incorporates dynamic enforcement and learning. Interestingly, we show that the ongoing signaling game between firm types might lead to firms over-complying with the emission standard.

A Note on Product Differentiation under Concave Transportation Costs

Concavity of transportation costs has been rarely considered in the linear model of product differentiation, although it seems a reasonable assumption in many contexts. In this paper, we extend the results by Gabszewicz and Thisse (1986) about the existence of the sequential first-location-then-price equilibrium to the case where transportation costs are concave in distance. Thus, there exists a unique sequential equilibrium in the model of vertical differentiation which involves maximal differentiation, while the sequential equilibrium under horizontal differentiation fails to exist. In this latter case, under given locations, firms need not be sufficiently far from each other for a price equilibrium to exist. In fact, a possible equilibrium involves both firms being located near one extreme of the city. In that case, the demand of the furthest firm is non-connected.

Pollution Standards, Costly Monitoring and Fines

We investigate the features of optimal regulatory policies composed of pollution standards and probabilities of inspection, where fines for non-compliance depend not only on the degree of violation but alson on nongravity factors.We show that optimal policies can induce either compliance or noncompliance with the standards, the latter being more plausible when monitoring costs are large and, surprisingly, when gravity-based fines are large.Also, both tghe convexity of the sanctions and the level of the non-gravity-based penalties play a key role as to whether optimal policies induce noncompliance.

The linear cost equivalent rule: A solution procedure for heterogeneous joint production problems

Abstract We propose an extension of the constant-returns-equivalent (CRE) solution for allocating joint costs/benefits among homogeneous contributors to environments in which contributors are heterogeneous. For the domain of quasilinear economies, we axiomatically characterize this solution by means of three axioms: efficiency, free access to linear economies, and a weak version of technological monotonicity which considers the different roles of the agents in generating the costs. Our proposal is also immune to arbitrary changes in the units of account of the various activities.

Optimal Environmental Standards under Asymmetric Information and Imperfect Enforcement

We study optimal policies composed of pollution standards, probabilities of inspection and fines dependant on the degree of noncompliance with the standards, in a context where regulated firms own private information.In contrast with previous literature, we show that optimal policies, being either pooling or separating, can imply violations to strictly positive standards.This results crucially depends on the monitoring costs, the types of firms and the regulators degree of uncertainty.