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American Economic Review: Vol. 101 No. 3 (May 2011)

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The Effect of Allowing Pollution Offsets with Imperfect Enforcement

Article Citation

Sigman, Hilary, and Howard F. Chang. 2011. "The Effect of Allowing Pollution Offsets with Imperfect Enforcement." American Economic Review, 101(3): 268-72.

DOI: 10.1257/aer.101.3.268

Abstract

Public policies for pollution control, including climate change policies, sometimes allow polluters in one sector subject to an emissions cap to offset excessive emissions with pollution abatement in another sector. The government may find it more costly to verify offset claims than to verify compliance with emissions caps. Concerns about such enforcement difficulties may lead regulators to restrict the use of offsets. We demonstrate that allowing offsets may increase pollution abatement and reduce illegal pollution, even if the government has a fixed enforcement budget. We explore circumstances that may make allowing pollution offsets an attractive option when enforcement is costly.

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Authors

Sigman, Hilary (Rutgers U)
Chang, Howard F. (U PA)

JEL Classifications

Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q54: Climate; Natural Disasters; Global Warming
Q58: Environmental Economics: Government Policy


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