Firms’ compliance decisions are expected to be strongly influenced by the expected fine for non-compliance with environmental regulations. In this paper we measure the effect of the probability of inspection and the size of the fine – jointly and separately – on the compliance decisions made by textile firms in Flanders. The results confirm the deterrence effect of increasing inspections, but they do not support a similar finding for monetary sanctions. The low levels of the sanctions that courts levy and the rapidly increasing marginal abatement costs imply that firms’ compliance decisions are not positively affected by the imposed penalties. However, we do find that it might be welfare enhancing to occasionally scan a selection of firms or sectors more deeply since the number of detected violations raises significantly as a consequence.
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