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4 - Enforcement Costs For any environmental policy we also...

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. Enforcement Costs For any environmental policy, we also need to consider the costs society pays to enforce and administer the policy. o These can be modeled as increasing the marginal abatement cost, which decreases the desired level of abatement. Thus, an important policy consideration is the level of enforcement. Enforcement can be continuous or random. o For example, some EPA air regulations require installation of a device to constantly measure emissions (continuous emissions monitoring systems, or CEMS). o Alternatively, random spot checks can take place. The problem is to balance out the cost of monitoring and the punishment o For a regulated firm: MB of compliance = avoided penalty = penalty for cheating * probability of getting caught MC of compliance = marginal abatement costs o Thus, the government can increase compliance by either raising the penalty for cheating or increasing the probability of getting caught.
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