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Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing

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  • Mary F. Evans

    ()
    (The Robert Day School of Economics and Finance, Claremont McKenna College)

  • Lirong Liu

    ()
    (Department of Economics and International Business, Sam Houston State University)

  • Sarah L. Stafford

    ()
    (Department of Economics, College of William and Mary)

Abstract

We explore how limits to our insight on the underlying decision-making structure of regulated entities may affect the conclusions we draw about the likely impacts of environmental policies, with a focus on environmental auditing. We examine the conditions under which a multi-facility firm chooses to adopt a standardized auditing. Our firm-level empirical analysis confirms that a uniform auditing outcome is less likely among firms (1) with a more heterogeneous portfolio of facilities, and (2) that are less likely to make decision errors. We examine the implications of adding controls for firm decision-making structure in a facility-level empirical analysis of auditing’s impact on compliance. Our results suggest that the estimated compliance impact of auditing varies depending on whether or not we include these controls.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 124.

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Length: 32 pages
Date of creation: 25 Aug 2012
Date of revision:
Handle: RePEc:cwm:wpaper:124

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  1. Shimshack, Jay P. & Ward, Michael B., 2005. "Regulator reputation, enforcement, and environmental compliance," MPRA Paper 25994, University Library of Munich, Germany.
  2. Friesen, Lana, 2006. "The social welfare implications of industry self-auditing," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 280-294, May.
  3. Laplante, Benoit & Rilstone, Paul, 1996. "Environmental Inspections and Emissions of the Pulp and Paper Industry in Quebec," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 19-36, July.
  4. Alexander Pfaff & Chris William Sanchirico, 2004. "Big field, small potatoes: An empirical assessment of EPA's self-audit policy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(3), pages 415-432.
  5. 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.
  6. Wilde, Joachim, 2000. "Identification of multiple equation probit models with endogenous dummy regressors," Economics Letters, Elsevier, vol. 69(3), pages 309-312, December.
  7. 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.
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