Gresham's law in environmental protection

Ya Po Yang, Jin-Li Hu

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Under incomplete environmental enforcement, the high-cost (less efficient) firm may strategically violate the environmental standard, causing the low-cost (more efficient) firm to exit the market-a phenomenon similar to Gresham's law in which bad money drives out good money. Tightening environmental regulation without increasing probability and penalties helps the high-cost firm to drive the low-cost firm out of the market. This explains why serious pollution and inefficient production co-exist in developing economies.

Original languageEnglish
Pages (from-to)103-122
Number of pages20
JournalEnvironmental Economics and Policy Studies
Volume14
Issue number2
DOIs
StatePublished - 1 Apr 2012

Keywords

  • Detection probability
  • Gresham's law
  • Incomplete environmental enforcement
  • Penalties

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