2005-03-06 papers

on Agricultural Economics

Issue of 2005‒03‒06
two papers chosen by

Pollution standards, costly monitoring and fines By Arguedas,Carmen
Boutique Fuels and Market Power By Ujjayant Chakravorty; Céline Nauges

Pollution standards, costly monitoring and fines

By:	Arguedas,Carmen (Tilburg University, Center for Economic Research)
Abstract:	We investigate the features of optimal regulatory policies composed of pollution standards and probabilities of inspection, where fines for non-compliance depend not only on the degree of violation but alson on nongravity factors. We show that optimal policies can induce either compliance or noncompliance with the standards, the latter being more plausible when monitoring costs are large and, surprisingly, when gravity-based fines are large. Also, both tghe convexity of the sanctions and the level of the non-gravity-based penalties play a key role as to whether optimal policies induce noncompliance.
JEL:	D82 K32 K42 L51
Date:	2005
URL:	http://d.repec.org/n?u=RePEc:dgr:kubcen:20059&r=agr

Boutique Fuels and Market Power

By:	Ujjayant Chakravorty; Céline Nauges
Abstract:	The US Clean Air Act allows individual states to implement their own clean fuel programs to address local or regional air quality concerns. These regulations have led to a proliferation of fuel blends known as “boutique fuels.” For each of the three grades of gasoline, more than 15 types of boutique fuels are currently in use, leading to about 45 different fuel blends in use nationally. These fuels are costly to produce, but they also segment the market and increase the market power of refiners. Using measures that differentiate gasoline regulation in a given state from those in neighboring states, we find that both cost and market segmentation significantly affect wholesale gasoline prices. In particular, the greater the regulatory “distance” between a state and its neighboring states, the higher the wholesale price in that state. Simulations suggest that for some states regulating a single boutique fuel nationally may lead to a counter-intuitive outcome: gasoline prices may decline, even though a larger share of their market will be under regulation.
Date:	2005–02
URL:	http://d.repec.org/n?u=RePEc:emo:wp2003:0511&r=agr

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