Complying with environmental regulations: experimental evidence

Effective environmental regulations require adequate monitoring and enforcement. Yet this is costly and resources are limited. In this chapter, we describe how experimental economics can improve our understanding of the factors that affect compliance, thereby leading to more effective deployment of these limited enforcement resources. We first describe how experiments can help in designing tools of monitoring and enforcement based on standard economic incentives (e.g., state-dependent enforcement, probability of detection versus fines, competitive audit mechanisms, contracts). Next we consider a specific environmental application in greater detail: compliance in “cap-and-trade†markets for pollution permits. Finally, we discuss how leveraging behavioural economic insights (framing, information, social pressure, reciprocity) can improve compliance. We provide examples of all of these applications to demonstrate how experiments provide insights that can lead to not only greater compliance but ultimately a cleaner environment.