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Do environmental audits improve long-term compliance? Evidence from manufacturing facilities in Michigan

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  • Mary Evans

  • Lirong Liu

  • Sarah Stafford

Abstract

Using a unique facility-level dataset from Michigan, we examine the effect of environmental auditing on manufacturing facilities’ long-term compliance with U.S. hazardous waste regulations. We also investigate the factors that affect facilities’ decisions to conduct environmental audits and whether auditing in turn affects the probability of regulatory inspections. We account for the potential endogeneity of our audit measure and the censoring of our compliance measure using a censored trivariate probit, which we estimate using simulated maximum likelihood. We find that larger facilities and those subject to more stringent regulations are more likely to audit; facilities with poor compliance records are less likely to audit. However, we find no significant long-run impact of auditing on the probability of a regulatory inspection or compliance among these Michigan manufacturing facilities.
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  • Mary Evans & Lirong Liu & Sarah Stafford, 2011. "Do environmental audits improve long-term compliance? Evidence from manufacturing facilities in Michigan," Journal of Regulatory Economics, Springer, vol. 40(3), pages 279-302, December.
    • Handle: RePEc:kap:regeco:v:40:y:2011:i:3:p:279-302
    DOI: 10.1007/s11149-011-9163-2
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    Cited by:

    1. Mary F. Evans & Lirong Liu & Sarah L. Stafford, 2012. "Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing," Working Papers 124, Economics Department, William & Mary.
    2. Zach Raff & Dietrich Earnhart, 2018. "Effect Of Cooperative Enforcement Strategies On Wastewater Management," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1357-1379, April.
    3. Earnhart Dietrich & Harrington Donna Ramirez & Glicksman Robert, 2021. "The Effects of Enforcement on Corporate Environmental Performance: The Role of Perceived Fairness," Review of Law & Economics, De Gruyter, vol. 17(1), pages 71-118, March.
    4. Sarah Dolfin & Nan Maxwell & Ankita Patnaik, "undated". "WHD Compliance Strategies: Directions for Future Research," Mathematica Policy Research Reports b7a5ca876e0b448f9b9c0850e, Mathematica Policy Research.
    5. Evans, Mary F. & Liu, Lirong & Stafford, Sarah L., 2015. "Standardization and the impacts of voluntary program participation: Evidence from environmental auditing," International Review of Law and Economics, Elsevier, vol. 43(C), pages 10-21.
    6. da Silva Rocha, André Barreira & Salomão, Gabriel Meyer, 2019. "Environmental policy regulation and corporate compliance in evolutionary game models with well-mixed and structured populations," European Journal of Operational Research, Elsevier, vol. 279(2), pages 486-501.
    7. Ma, Xin & Fan, Di & Zhou, Yi & Yang, Cheng-Hu, 2021. "The impact of inspection on the sustainable production strategy: Environmental violation and abatement in emerging markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 150(C).
    8. Earnhart, Dietrich H. & Glicksman, Robert L., 2015. "Coercive vs. cooperative enforcement: Effect of enforcement approach on environmental management," International Review of Law and Economics, Elsevier, vol. 42(C), pages 135-146.
    9. Earnhart, Dietrich & Mark Leonard, J., 2016. "Environmental audits and signaling: The role of firm organizational structure," Resource and Energy Economics, Elsevier, vol. 44(C), pages 1-22.
    10. Earnhart, Dietrich & Harrington, Donna Ramirez, 2014. "Effect of audits on the extent of compliance with wastewater discharge limits," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 243-261.
    11. Zach Raff & Dietrich Earnhart, 2020. "The effect of environmental enforcement on labor: environmental workers and production workers," Journal of Regulatory Economics, Springer, vol. 57(2), pages 118-133, April.
    12. Sarah Dolfin & Nan Maxwell & Alix Gould-Werth & Armando Yañez & Jonah Deutsch & Libby Hendrix, "undated". "Compliance Strategies Evaluation Literature and Database Review," Mathematica Policy Research Reports 92ddb450d98b4b128f4fd1442, Mathematica Policy Research.
    13. Dietrich Earnhart, 2013. "Effect of Systems to Manage Environmental Aspects on Environmental Performance," Sustainability, MDPI, vol. 5(6), pages 1-32, June.

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    JEL classification:

    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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