High Priority Violation Policy and Targeting Enforcement: An Empirical Analysis of its Effectiveness and Efficiency

The High Priority Violation (HPV) Policy represents a way to target enforcement in environmental regulations; serious air pollution violators are targeted with timely and appropriate enforcement, and such enforcement usually means high degree of regulatory scrutiny. Despite the importance of enforcement, the empirical literature on the effectiveness and efficiency of targeting enforcement is very limited. This paper provides the first empirical evidence on the effects of HPV policy and the externalities associated with this policy. To examine HPV targeting, dynamic panel models are employed using a rich plant-level dataset consisting of 8,736 major manufacturing facilities nationwide during the period 2001-2010. Our results suggest positive specific deterrence effects of HPV status—a four-month increase on the HPV listing time in the previous year leads to about one extra month of compliance. We also find general deterrence effects of HPV targeting—a typical facility, regardless of its HPV status, increases its compliance rate when there is an increase in the amount of fines imposed on other HPV facilities within the same state. Both the specific and general deterrence effects of enforcement differ by HPV status—HPV facilities on average are less responsive to additional specific or general enforcement actions. Thus the efficiency of HPV targeting is undermined. Potential reasons for the inefficiency include high abatement costs for HPV facilities and the inadequate addressing of the High Priority Violators by the regulators. This paper explores the effectiveness as well as efficiency of HPV policy and has important policy implications.