Tradeable-permit pollution control systems with and without commitment to auditing

This article analyzes and compares behaviors of a regulator and polluting firms in tradeable permit systems with and without commitment to auditing. If all firms are compliant, the equilibria under both of the schemes are the same. In contrast, if noncompliant firms exist, the equilibria under the two systems differ. The optimal permit number could affect the equilibrium auditing probability in the no-commitment case, while this impact would not appear in the commitment case. Moreover, the regulator will audit more under no commitment to auditing. The system with no commitment to auditing is less efficient than that with commitment to auditing. Copyright Springer Japan 2005