We study optimal policies composed of pollution standards, probabilities of inspection and fines dependant on the degree of noncompliance with the standards, in a context where regulated firms own private information.In contrast with previous literature, we show that optimal policies, being either pooling or separating, can imply violations to strictly positive standards.This results crucially depends on the monitoring costs, the types of firms and the regulator's degree of uncertainty.
|Place of Publication||Tilburg|
|Number of pages||38|
|Publication status||Published - 2005|
|Name||CentER Discussion Paper|
- costly inspections
- convex fines
- asymmetric information