This paper extends a previous analysis by Franckx (2001). We consider an inspection game between n polluting firms and an environmental enforcement agency. If the cost of monitoring ambient pollution is low enough, the optimal inspection policy consists in, on the one hand, imposing the maximal possible fine, and, on the other hand, mixing between observing ambient pollution and not conducting any inspection at all. However, with stringent upper limits on the fine, the agency mixes between observing ambient pollution and inspecting all firms. The observation of ambient pollution is always followed by sequentially rational firm inspections.
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Find related papers by JEL classification: K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
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