An emission tax pollution control system with imperfect monitoring

This article analyzes regulator and polluting firm behavior in an emission tax system with imperfect monitoring, and contrasts the associated results with those under perfect monitoring. It is found that the firm’s optimal emissions may depend on either monitoring probability or emission tax for perfect monitoring, while they are affected by both monitoring probability and emission tax in imperfect monitoring. Moreover, as monitoring probability increases, the firm could abate fewer emissions in imperfect monitoring. The relative sizes of equilibrium monitoring probability in the two monitoring setups are uncertain. Copyright Springer Japan 2009