Transcript C H A P T E R 16 AUDITS, ENFORCEMENT, AND MORAL HAZARD ENVIRONMENTAL ECONOMICS – 2e Charles D.

C H A P T E R 16
AUDITS, ENFORCEMENT, AND
MORAL HAZARD
ENVIRONMENTAL ECONOMICS – 2e
Charles D. Kolstad
Copyright © 2011 by Oxford University Press, Inc.
FIGURE 16.1 Illustration of unobserved effort. MD, f = fL, marginal damage, effort at lowest level; MD, f = f*, marginal damage, effort at optimal level;
MC, f = fL, marginal cost of abatement, effort at lowest level; MC, marginal cost of abatement, effort at optimal level; a*, efficient level of
abatement; aL, second-best level of abatement, with effort at lowest level; f*, efficient level of effort.
ENVIRONMENTAL ECONOMICS – 2e
Charles D. Kolstad
Copyright © 2011 by Oxford University Press, Inc.
FIGURE 16.2 Two farmers on a river.
ENVIRONMENTAL ECONOMICS – 2e
Charles D. Kolstad
Copyright © 2011 by Oxford University Press, Inc.
ENVIRONMENTAL ECONOMICS – 2e
Charles D. Kolstad
Copyright © 2011 by Oxford University Press, Inc.
FIGURE 16.4 The decision to invest in abatement equipment. T, tight regulation; L, loose regulation. Note: Abatement equipment costs $50 per
period. Clean fuel costs $60 per period with tight regulation and $30 per period with loose regulation. Circled actions in period 2 result in the lowest
cost to the firm, for each different combination of firm and regulator action.
ENVIRONMENTAL ECONOMICS – 2e
Charles D. Kolstad
Copyright © 2011 by Oxford University Press, Inc.