The deterrence effect of linear versus convex fines: laboratory evidence

Caffera, Marcelo; Chávez, Carlos; Ardente, Analía

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Autor/es

Caffera, Marcelo ; Chávez, Carlos ; Ardente, Analía

Editor

Taylor and Francis

Fecha

2021

Extensión

pp. 45-70

Abstract

Using experiments in which participants play the role of pollutingfirms, we study compliance behavior with emissions limits undertwo types of fines and two different regulatory instruments. We findthat the market price of pollution permits and the probability ofviolating permits holdings are higher with a fine that is convex inthe level of violation than with one that is linear. This effect oper-ates through an increase in the prices asked by sellers, not in thebids made by the buyers of permits. We do not observe an effect ofthe type of the fine on the average level of violation or the numberof firms in violation in the case of emission standards. We concludethat the type of fines may affect the cost-effectiveness of pollutioncontrol programs based on tradable pollution permits.