Environmental regulation and tax evasion when the regulator has incomplete information

IF 2.6 3区经济学 Q1 ECONOMICS

Resource and Energy Economics Pub Date : 2025-02-01 DOI:10.1016/j.reseneeco.2024.101475

Francisco Cabo, Guiomar Martín-Herrán, Laís Ramos

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Abstract

This paper analyzes the dynamic interaction between an environmental regulator and a polluting firm in a stock pollution Stackelberg game, where the regulator acts as the leader and the firm as the follower. The firm must determine the emissions required for production and pay a tax based on its reported emissions. The regulator chooses this tax on emissions to induce more environmentally respectful behavior of the firm. Evasion, defined as the gap between real and reported emissions can be discouraged using a fine. A central assumption in our analysis is that the regulator has incomplete information regarding the firm’s objective function. The regulator does not know, but conjectures, how afraid the firm is of the fine for fraud. Based on this conjecture, the regulator estimates the firm’s best-response functions and determines the tax. We compare the results when the regulator is accurate or misguided. Interestingly we find that when the regulator overestimates the firm’s fear of the fine for fraud, social welfare can be greater than when he accurately estimates it.

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来源期刊

Resource and Energy Economics Multiple-

CiteScore

5.40

自引率

0.00%

发文量

期刊介绍： Resource and Energy Economics provides a forum for high level economic analysis of utilization and development of the earth natural resources. The subject matter encompasses questions of optimal production and consumption affecting energy, minerals, land, air and water, and includes analysis of firm and industry behavior, environmental issues and public policies. Implications for both developed and developing countries are of concern. The journal publishes high quality papers for an international audience. Innovative energy, resource and environmental analyses, including theoretical models and empirical studies are appropriate for publication in Resource and Energy Economics.