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On the Role of Fines as an Environmental Enforcement Tool

Author

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  • Surabhi Kadambe
  • Kathleen Segerson

Abstract

This paper provides a theoretical analysis of enforcement and compliance decisions when the enforcement process involves significant interaction between a source of violation and enforcer. We show that the comparative static effects of a fine on the probability of a violation consist of a direct effect, which refers to the effect of an increase in the fine on the expected cost of a violation holding the probabilities of enforcementrelated decisions constant, and an indirect effect, which refers to the effect of the fine on the probability of a violation through its effect on the probabilities of enforcement actions taken by the regulator. We show that, in the absence of the indirect effects, an increase in the fine unambiguously reduces the probability of a violation and hence should lead to lower pollution (as expected). However, if the indirect effects are positive and large, an increase in the fine can actually reduce the likelihood that a firm will comply with environmentalregulations. Thus, the increased fines do not necessarily increase compliance incentives.

Suggested Citation

  • Surabhi Kadambe & Kathleen Segerson, 1998. "On the Role of Fines as an Environmental Enforcement Tool," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 41(2), pages 217-226.
    • Handle: RePEc:taf:jenpmg:v:41:y:1998:i:2:p:217-226
    DOI: 10.1080/09640569811722
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    Cited by:

    1. Earnhart, Dietrich, 2004. "Regulatory factors shaping environmental performance at publicly-owned treatment plants," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 655-681, July.
    2. May Cheung & Jun Zhuang, 2012. "Regulation Games Between Government and Competing Companies: Oil Spills and Other Disasters," Decision Analysis, INFORMS, vol. 9(2), pages 156-164, June.
    3. Takayoshi Shinkuma & Shunsuke Managi, 2012. "Effectiveness of policy against illegal disposal of waste," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(2), pages 123-145, April.
    4. Jin-Li Hu & Chung-Huang Huang & Wei-Kai Chu, 2004. "Bribery, hierarchical government, and incomplete environmental enforcement," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 6(3), pages 177-196, September.
    5. Dongryul Lee & Kyung Hwan Baik, 2017. "Concealment and verification over environmental regulations: a game-theoretic analysis," Journal of Regulatory Economics, Springer, vol. 51(3), pages 235-268, June.
    6. Nuno Garoupa, 2004. "Punish Once or Punish Twice: A Theory of the Use of Criminal Sanctions in Addition to Regulatory Penalties," American Law and Economics Review, Oxford University Press, vol. 6(2), pages 410-433.
    7. Vicki M. Bier & Shi‐Woei Lin, 2013. "Should the Model for Risk‐Informed Regulation be Game Theory Rather than Decision Theory?," Risk Analysis, John Wiley & Sons, vol. 33(2), pages 281-291, February.

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