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Regulator reputation, enforcement, and environmental compliance

  • Shimshack, Jay P.
  • Ward, Michael B.

This paper explores empirically the impact of enforcement efforts on environmental compliance, focusing on the role of regulator reputation spillover effects. We find that, on the margin, the impact of a fine for water pollutant violations is about a two-thirds reduction in the statewide violation rate in the year following a fine. This large result obtains through the regulator’s enhanced reputation; the deterrence impact on other plants in a state is almost as strong as the impact on the sanctioned plant. Focusing only on the response of the sanctioned plant, as in previous studies, may therefore seriously underestimate the efficacy of fines and other sanctions. This paper also examines the relative effectiveness of monitoring and enforcement instruments. Non-monetary sanctions contribute no detected impact on compliance, and the marginal fine induces substantially greater compliance than the marginal inspection.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25994.

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Date of creation: 2005
Date of revision:
Publication status: Published in Journal of Environmental Economics and Management 3.50(2005): pp. 519-540
Handle: RePEc:pra:mprapa:25994
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  1. Ronald J Shadbegian & Wayne B Gray, 2001. "When Do Firms Shift Production Across States to Avoid Environmental Regulation?," Working Papers 01-18, Center for Economic Studies, U.S. Census Bureau.
  2. Polinsky, A. Mitchell & Shavell, Steven, 1998. "On offense history and the theory of deterrence," International Review of Law and Economics, Elsevier, vol. 18(3), pages 305-324, September.
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  8. Sarah L. Stafford, 2000. "The Impact of Environmental Regulations on the Location of Firms in the Hazardous Waste Management Industry," Land Economics, University of Wisconsin Press, vol. 76(4), pages 569-589.
  9. Mary E. Deily & Wayne B. Gray, 1989. "Enforcement of pollution regulations in a declining industry," Working Paper 8912, Federal Reserve Bank of Cleveland.
  10. Gray, Wayne B. & Deily, Mary E., 1996. "Compliance and Enforcement: Air Pollution Regulation in the U.S. Steel Industry," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 96-111, July.
  11. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
  12. Stafford, Sarah L., 2002. "The Effect of Punishment on Firm Compliance with Hazardous Waste Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 290-308, September.
  13. 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.
  14. Nadeau, Louis W., 1997. "EPA Effectiveness at Reducing the Duration of Plant-Level Noncompliance," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 54-78, September.
  15. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
  16. Nelson, Forrest & Olson, Lawrence, 1978. "Specification and Estimation of a Simultaneous-Equation Model with Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 695-709, October.
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