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Monitoring environmental standards : do local conditions matter?

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  • Dion, Catherine
  • Lanoie, Paul
  • Laplante, Benoit
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    Abstract

    Economists have criticized regulations that impose uniform environmental standards on plants that may face different marginal abatement costs and damage functions. Such critics ignore the difference in standard implementation across plants, giving rise to nonuniform standards. The authors analyze what determines the regulators'monitoring activities and what factors explain their decision to inspect a plant's environmental performance. They find that regulators are sensitive to local environmental damages and allocate inspection efforts to plants whose emissions are likely to generate more damage. Although national standards are uniform, implementation is a function of local conditions. Local monitoring and enforcement of national standards effectively determines the local price of pollution. Ignoring the tradeoffs taking place locally could undermine and render ineffective national regulatory and policy reform. This supports the public interest theory of regulation, which views the regulator as an agent whose objective is to maximize social welfare. The authors also show that the regulator's behavior is a function of variables not directly related to abatement cost and damages. In particular, conditions in the local labor market affect the regulator's monitoring strategy choice. This lends support to the economic theory of regulation, which views regulators as agents whose behavior can best be explained by assuming that they seek to maximize their political support.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1701.

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    Date of creation: 31 Jan 1997
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    Handle: RePEc:wbk:wbrwps:1701

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    Keywords: Administrative&Regulatory Law; Environmental Economics&Policies; Labor Policies; Health Economics&Finance; Economic Theory&Research; Environmental Economics&Policies; Environmental Governance; Administrative&Regulatory Law; Health Economics&Finance; Water and Industry;

    References

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    1. Mary E. Deily & Wayne B. Gray, 1989. "Enforcement of pollution regulations in a declining industry," Working Paper 8912, Federal Reserve Bank of Cleveland.
    2. Kaserman, David L & Mayo, John W & Pacey, Patricia L, 1993. "The Political Economy of Deregulation: The Case of Intrastate Long Distance," Journal of Regulatory Economics, Springer, Springer, vol. 5(1), pages 49-63, March.
    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. George J. Stigler, 1974. "The Optimum Enforcement of Laws," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 55-67 National Bureau of Economic Research, Inc.
    5. Magat, Wesley A & Viscusi, W Kip, 1990. "Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 33(2), pages 331-60, October.
    6. Linder, Stephen H. & McBride, Mark E., 1984. "Enforcement costs and regulatory reform: The agency and firm response," Journal of Environmental Economics and Management, Elsevier, vol. 11(4), pages 327-346, December.
    7. William J. Furlong, 1991. "The Deterrent Effect of Regulatory Enforcement in the Fishery," Land Economics, University of Wisconsin Press, vol. 67(1), pages 116-129.
    8. Richard A. Posner, 1974. "Theories of Economic Regulation," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 5(2), pages 335-358, Autumn.
    9. Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
    10. Beavis, Brian & Dobbs, Ian, 1987. "Firm behaviour under regulatory control of stochastic environmental wastes by probabilistic constraints," Journal of Environmental Economics and Management, Elsevier, vol. 14(2), pages 112-127, June.
    11. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
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    Cited by:
    1. Nadvi, Khalid, 1999. "Collective Efficiency and Collective Failure: The Response of the Sialkot Surgical Instrument Cluster to Global Quality Pressures," World Development, Elsevier, Elsevier, vol. 27(9), pages 1605-1626, September.
    2. Pargal, Sheoli & Mani, Muthukumara & Huq, Mainul, 1997. "Inspections and emissions in India : puzzling survey evidence about industrial pollution," Policy Research Working Paper Series 1810, The World Bank.

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