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Big field, small potatoes: An empirical assessment of EPA's self-audit policy

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Author Info

  • Alexander

    () (Columbia University - Department of International & Public Affairs)

  • Chris William Sanchirico

    () (Columbia University - Department of Economics)

  • John Lee

    () (Columbia University - Department of Economics)

  • Daniel Prager

    () (University of Pennsylvania Law School)

Abstract

Environmental self-auditing by private firms is generally thought to both deserve and require encouragement. Firms can audit themselves more cheaply and effectively than can regulators, but too often are deterred for fear that the information they uncover will be used against them. To reduce this disincentive, the EPA's "Audit Policy" lowers punitive fines when firms promptly disclose and correct violations that they themselves discover. While some contend that the Audit Policy is inadequate, EPA touts its success, presenting as evidence the policy's track record to date. Yet our examination of that track record leads us to question EPA's conclusions. While the policy appears to have encouraged firms to self-audit in a number of instances, a comparison of the violations uncovered in these cases with those detected by standard enforcement practices suggests that the typical self-audited violation is relatively minor. For instance, cases arising under the Audit Policy are more likely to concern reporting violations, rather than emissions. The relative insignificance of self-audited violations raises a number of broader policy questions, including whether the Audit Policy could and should be revised to play a larger role in regulatory enforcement.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0102-55.

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Length: 35 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:clu:wpaper:0102-55

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References

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  1. Arlen, Jennifer, 1994. "The Potentially Perverse Effects of Corporate Criminal Liability," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 832-67, June.
  2. Innes, Robert, 2000. "Self-Reporting in Optimal Law Enforcement When Violators Have Heterogeneous Probabilities of Apprehension," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 287-300, January.
  3. Robert Innes, 1999. "Self-Policing and Optimal Law Enforcement When Violator Remediation is Valuable," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1305-1325, December.
  4. Linda T.M. Bui & Christopher J. Mayer, . "Regulation and Capitalization of Environmental Amenities: Evidence from the Toxic Release Inventory in Massachusetts," Zell/Lurie Center Working Papers 348, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  5. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
  6. Hartman, Raymond S. & Huq, Mainul & Wheeler, David, 1997. "Why paper mills clean up : determinants of pollution abatement in four Asian countries," Policy Research Working Paper Series 1710, The World Bank.
  7. Pfaff, Alexander S P & Sanchirico, Chris William, 2000. "Environmental Self-Auditing: Setting the Proper Incentives for Discovery and Correction of Environmental Harm," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 189-208, April.
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Cited by:
  1. Sarah L. Stafford, 2007. "Should you turn yourself in? The consequences of environmental self-policing," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 305-326.
  2. Sarah L. Stafford, 2006. "Should You Turn Yourself In? The Consequences of Environmental Self-Policing," Working Papers 27, Department of Economics, College of William and Mary, revised 13 Jun 2006.
  3. Guerrero, Santiago & Innes, Robert, 2008. "Statutory Rewards to Environmental Self-Auditing: Do They Reduce Pollution and Save Regulatory Costs? Evidence from a Cross-State Panel," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6204, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Kjetil Telle, 2012. "Monitoring and enforcement of environmental regulations. Lessons from a natural field experiment in Norway," Discussion Papers 680, Research Department of Statistics Norway.
  5. James J. Murphy & John K. Stranlund, 2005. "An Investigation of Voluntary Discovery and Disclosure of Environmental Violations Using Laboratory Experiments," Working Papers 2005-7, University of Massachusetts Amherst, Department of Resource Economics.
  6. Mary Evans & Lirong Liu & Sarah Stafford, 2011. "Do environmental audits improve long-term compliance? Evidence from manufacturing facilities in Michigan," Journal of Regulatory Economics, Springer, vol. 40(3), pages 279-302, December.
  7. Sarah L. Stafford, 2006. "Self-Policing in a Targeted Enforcement Regime," Working Papers 26, Department of Economics, College of William and Mary.
  8. Eberhard Feess & Markus Walzl, 2005. "Optimal Self-Reporting Schemes with Multiple Stages and Option Values," International Tax and Public Finance, Springer, vol. 12(3), pages 265-279, May.
  9. Michael W. Toffel, 2008. "Coerced Confessions: Self-Policing in the Shadow of the Regulator," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 45-71, May.
  10. Madhu Khanna & Diah Widyawati, 2011. "Fostering Regulatory Compliance: The Role of Environmental Self-Auditing and Audit Policies," Review of Law & Economics, De Gruyter, vol. 7(1), pages 7.
  11. Alfredo Burlando & Alberto Motta, 2007. "Self Reporting reduces corruption in law enforcement," "Marco Fanno" Working Papers 0063, Dipartimento di Scienze Economiche "Marco Fanno".
  12. Mary F. Evans & Lirong Liu & Sarah L. Stafford, 2012. "Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing," Working Papers 124, Department of Economics, College of William and Mary.

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