RT info:eu-repo/semantics/article
T1 Environmental regulation and tax evasion when the regulator has incomplete information
A1 Cabo, Francisco
A1 Martín-Herrán, Guiomar
A1 Ramos, Laís
AB This paper analyzes the dynamic interaction between an environmental regulator and apolluting firm in a stock pollution Stackelberg game, where the regulator acts as the leader andthe firm as the follower. The firm must determine the emissions required for production andpay a tax based on its reported emissions. The regulator chooses this tax on emissions to inducemore environmentally respectful behavior of the firm. Evasion, defined as the gap between realand reported emissions can be discouraged using a fine. A central assumption in our analysisis that the regulator has incomplete information regarding the firm’s objective function. Theregulator does not know, but conjectures, how afraid the firm is of the fine for fraud. Based onthis conjecture, the regulator estimates the firm’s best-response functions and determines thetax. We compare the results when the regulator is accurate or misguided. Interestingly we findthat when the regulator overestimates the firm’s fear of the fine for fraud, social welfare canbe greater than when he accurately estimates it.
SN 0928-7655
YR 2025
FD 2025
LK https://uvadoc.uva.es/handle/10324/75402
UL https://uvadoc.uva.es/handle/10324/75402
LA eng
NO Resource and Energy Economics 81, Art. No. 101475, 2025
NO Producción Científica
DS UVaDOC
RD 28-mar-2025