An experimental analysis of the effects of imperfect compliance on technology adoption

Abstract

We present the results of an experimental investigation on incentives to adopt cleaner abatement technologies in the presence of imperfect compliance. We consider two emission control instruments—emission taxes and tradable permits—as well as diferent combinations of the inspection probability and fne for non-compliance, which can result in full or weak enforcement scenarios. We review and qualify existing theoretical predictions in several ways and fnd the main result is that allowing for weak enforcement causes tax evasion, reductions in permit prices and lower adoption rates of cleaner abatement technologies. As a result, there are increases in aggregate emissions. Finally, treatments with tradable permits under weak enforcement encounter insufcient trading.