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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. 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.
  2. 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.
  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. 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.
  5. 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.
  6. 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. Mary F. Evans & Lirong Liu & Sarah L. Stafford, 2008. "Do Environmental Audits Improve Long-term Compliance? Evidence from Manufacturing Facilities in Michigan," Working Papers 78, Department of Economics, College of William and Mary, revised 25 Sep 2011.
  2. Telle, Kjetil, 2013. "Monitoring and enforcement of environmental regulations," Journal of Public Economics, Elsevier, vol. 99(C), pages 24-34.
  3. 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.
  4. 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.
  5. Julien Etienne, 2010. "Self-reporting untoward events to external controllers: accounting for reporting failure by a top tier chemical plant," LSE Research Online Documents on Economics 36546, London School of Economics and Political Science, LSE Library.
  6. 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.
  7. 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.
  8. Friesen, Lana & Gangadharan, Lata, 2013. "Designing self-reporting regimes to encourage truth telling: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 90-102.
  9. Motta, Alberto & Burlando, Alfredo, 2007. "Self reporting reduces corruption in law enforcement," MPRA Paper 5332, University Library of Munich, Germany, revised 23 Jun 2007.
  10. 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.
  11. Sarah L. Stafford, 2006. "Self-Policing in a Targeted Enforcement Regime," Working Papers 26, Department of Economics, College of William and Mary.

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