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Use of competitive endogenous audit mechanisms by federal and state inspectors within environmental protection agencies

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  • Earnhart, Dietrich
  • Friesen, Lana

Abstract

Competitive endogenous audit mechanisms may help budget-constrained regulatory agencies to improve compliance with regulations. Under these mechanisms, the probability of an audit depends on relative comparisons among peers, with agencies directing resources towards those entities the agencies believe to be less compliant than other similar regulated entities. Despite their theoretical advantages, no previous empirical study explores whether any agency implements these mechanisms. We provide this evidence by examining the inspection strategies of U.S. Environmental Protection Agency (EPA) regional offices and state agencies charged with enforcing Clean Water Act discharge limits imposed on chemical manufacturing facilities. We find that federal inspectors appear to use competitive endogenous audit mechanisms involving relative evaluation but state inspectors apparently do not. Our empirical study represents the first necessary step for demonstrating that use of competitive endogenous audit mechanisms improves compliance in practice.

Suggested Citation

  • Earnhart, Dietrich & Friesen, Lana, 2021. "Use of competitive endogenous audit mechanisms by federal and state inspectors within environmental protection agencies," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
  • Handle: RePEc:eee:jeeman:v:109:y:2021:i:c:s0095069621000565
    DOI: 10.1016/j.jeem.2021.102476
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    More about this item

    Keywords

    Regulation; Tournament; Inspections; Environment; Wastewater;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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