Targeted Enforcement and Aggregate Emissions With Uniform Emission Taxes

Abstract

In practice, targeted monitoring seems to be a strategy frequently used by regulators. In this paper, we study the effects of targeted monitoring strategies on the adoption of a new abatement technology and, consequently, on the aggregate emissions level when firms are regulated with uniform taxes. The results suggest that a regulator aiming to stimulate technology adoption should decrease the adopters’ monitoring probability and/or increase the non-adopters’ monitoring probability. In contrast to previous literature, we find that, in some cases, a regulator whose objective is to minimize aggregate emissions should exert a stronger monitoring pressure on firms with higher abatement costs.