Optimal monitoring for project-based emissions trading systems under asymmetric information

MacKenzie, Ian A. and Ohndorf, M. (2012) Optimal monitoring for project-based emissions trading systems under asymmetric information. Journal of Regulatory Economics, 42 2: 180-203. doi:10.1007/s11149-012-9196-1


Author MacKenzie, Ian A.
Ohndorf, M.
Title Optimal monitoring for project-based emissions trading systems under asymmetric information
Journal name Journal of Regulatory Economics   Check publisher's open access policy
ISSN 0922-680X
1573-0468
Publication date 2012
Sub-type Article (original research)
DOI 10.1007/s11149-012-9196-1
Volume 42
Issue 2
Start page 180
End page 203
Total pages 24
Place of publication Secaucus, NJ, United States
Publisher Springer
Collection year 2013
Language eng
Abstract Project-based emissions trading schemes, like the Clean Development Mechanism, are particularly prone to problems of asymmetric information between project parties and the regulator. In this paper, we extend the general framework on incomplete enforcement of policy instruments to reflect the particularities of credit-based mechanisms. The main focus of the analysis is to determine the regulator's optimal spot-check frequency given plausible assumptions of incomplete enforcement under asymmetric information on reduction costs and heterogeneous verifiability of projects. We find that, depending on the actual abatement cost and penalty schemes, optimal monitoring for credit-based systems is often discontinuous and significantly differs from the one to be applied for cap-and-trade schemes or environmental taxes. We conclude that, in a real-world context, project admission should ultimately be based on the criterion of verifiability.
Keyword Audits and compliance
Environmental regulation
Project-based emissions trading systems
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Non HERDC
School of Economics Publications
 
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Created: Thu, 08 Nov 2012, 16:27:01 EST by Alys Hohnen on behalf of School of Economics