Jon D. Harford

Firm behavior under imperfectly enforceable pollution standards and taxes

Abstract Assuming expected profit maximization, the behavior of the firm under imperfectly enforceable pollution standards is examined. Among other results, it is found that cost subsidies can reduce the size of violation and amount of wastes, and that the shape of the expected penalty function determines the direction of the firm response to tighter standards. Under imperfectly enforceable pollution taxes, it is found, among other results, that the firms actual level of wastes is independent of proportional changes in the expected penalty for pollution tax evasion, and that the marginal cost of actual waste reduction equals the unit tax on reported wastes. Some normative aspects of the results are discussed.

A reconsideration of enforcement leverage when penalties are restricted

Abstract Harringtons (1988) model of state-dependent enforcement of pollution standards indicates the potential for significant reductions in monitoring cost. However, this approach results in firms with identical pollution cost functions polluting at different levels and thereby failing to minimize control cost for a given total pollution reduction. Derivations indicate that a state- independent approach with a modified standard will often yield a lower sum of pollution control and monitoring cost for a given level of pollution control.

Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations

Abstract Motivated by the nature of U.S. laws, a model is developed for a firm that maximizes expected profit and faces imperfectly enforceable pollution standards with imperfectly enforceable reporting requirements. Some previous models of imperfectly enforceable standards and taxes are special cases of this general mode. When the fine for violating the pollution standard is linear in excess pollution, the form will equate the marginal cost of control to the marginal fine rate, and thus actual pollution will be insensitive to enforcement parameters related to under-reporting. The more complex comparative statics that exist when the fine is non-linear are analyzed, and comparisons with other models are made.

Measurement error and state-dependent pollution control enforcement

Abstract A two-group model of state-dependent enforcement is applied to identical firms which minimize the expected present value of costs and fines. Measurement error affects the probabilities of transitions between groups and the receipt of fines. It is shown that state-dependent enforcement can reduce social cost below the level attainable with static enforcement and that differentiation in both monitoring probabilities and standards may be optimal. However, setting fines for both groups at the maximum is likely to be optimal. Comparisons between models and alternative model interpretations are offered.

Averting behavior and the benefits of reduced soiling

Abstract The individuals choice of cleaning frequency is examined theoretically under assumptions more general than those of previous authors. The individual is assumed to maximize utility over “cleanliness” and a general commodity, where cleanliness is determined by frequency of cleaning and ambient pollution. Allowance is made for the possibility that the cost per cleaning episode is positively affected by pollution and negatively affected by the frequency of cleaning. The present framework is used to make comparisons and comments regarding the assumptions and results of Watson and Jaksch [J. Environ. Econ. Manag. 9 (1982), 248–262] and Courant and Porter [J. Environ. Econ. Manag. 8 (1981), 321–329].

The ivory trade ban: Is it effective?

Abstract This paper examines the effectiveness of the ivory trade ban when producer and consumer states have different incentives to comply with such a ban. The paper distinguishes between two types of producer states: those with stable elephant population and those with declining elephant population. We compare the independent enforcement level of each of these producer states and a consumer state and show the suboptimality of these levels compared to optimal enforcement level that would result from a cooperative effort. The costliness and imperfectness of enforcing constraints on the private taking of elephants creates intergovernmental externalities. Thus, in the absence of binding international law, regulation would have to be supplemented with incentives.

Tuition and U.S. Private College Characteristics: The Hedonic Approach.

Abstract Tuition at private colleges in the United States for the academic year 1982–1983 were statistically very closely related to quality characteristics associated with those colleges. Reduced form hedonic regressions reveal the equilibrium marginal tuition revenue estimates for over twenty important measures of quality, including faculty-student ratios, library size, and the percentage of the faculty holding Ph.D. degrees. These findings show that private college tuition responds in economically sensible ways to changes in public tuition, and changes in the quantity and quality of the faculties, facilities, and student bodies at private colleges.

Firm ownership patterns and motives for voluntary pollution control

From the viewpoint of standard theory, firms have sometimes seemed to overcontrol pollution. However, Gordon (1990) and others have noted that the more diversified investors are the greater the degree of internalization of externalities. This paper explores the implications of diversification for the firms choice of pollution in comparison with alternative explanations of voluntary pollution control, such as profit-seeking through regulatory influence, and altruism. The paper also addresses issues arising from the spatial aspects of pollution, and the relationship between stockholder and managerial incentives for pollution control.

Pollution taxes and standards: A continuum of quasi-optimal solutions

Abstract A generalized second-best problem, involving a perfectly competitive industry which produces a pollution type of externality, is examined. The pollution tax is allowed to assume an arbitrary value (possibly zero), while a pollution standard, set as a ratio of pollution to output, is determined by a first-order optimizing condition. The general condition for a set of quasi-optimal solutions includes the Pareto-optimal solution as a special case. It is also found that when the pollution tax is below the optimal level, the usual implication is that the standard should be set so that the marginal cost of pollution reduction exceeds the marginal external damage.

Adjustment costs and optimal waste treatment

Consideration is given to various reasons for changing standards on emissions, effluents, and ambient air and water quality. It is proposed that adjustment costs may be of significant practical importance in determining the optimal time path of waste treatment (at least currently). The problem of minimizing the present value of the sum of treatment plus damage plus adjustment costs is placed in a calculus of variations framework and the optimal time path of waste treatment is characterized as well as the corresponding optimal tax. An example is used to illustrate some features of the solution.