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Monitoring and Enforcement: Is Two-Tier Regulation Robust?


  • Sterner, Thomas
  • Kathuria, Vinish


The regulation of industrial pollution is clearly difficult in a rapidly industrializing, low-income setting. In addition to the general lack of resources for monitoring and enforcement, authorities must deal with the asymmetric nature of the information and multiple nonpoint sources of pollution. In this study we look at efforts to regulate chemical plants in Ankleshwar, in the Indian state of Gujarat. The plants are located in an industrial estate, which provides interesting preconditions for a form of two-tier regulation, in which an industry association becomes an intermediary between the government and individual firms: it monitors its members’ pollution and promotes compliance with the government’s environmental regulations. The Indian agency responsible for environmental protection cannot effectively control the many small individual plants within such estates. The local industry association is much better informed and has an incentive to regulate its members to maintain a good reputation but does not possess much formal authority, and its voluntary monitoring and abatement program is akin to managing a common property resource. We study four preconditions for the success of such management: suitable design principles, effective monitoring, objective implementation of rules, and enforcement. We show that these conditions are satisfied at least to some extent in Ankleshwar and that the fines decrease pollution.

Suggested Citation

  • Sterner, Thomas & Kathuria, Vinish, 2002. "Monitoring and Enforcement: Is Two-Tier Regulation Robust?," Discussion Papers dp-02-17, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-02-17

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    References listed on IDEAS

    1. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-159, January.
    2. Mookherjee, Dilip & Png, I P L, 1992. "Monitoring vis-a-vis Investigation in Enforcement of Law," American Economic Review, American Economic Association, vol. 82(3), pages 556-565, June.
    3. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
    4. Pargal, Sheoli & Wheeler, David, 1996. "Informal Regulation of Industrial Pollution in Developing Countries: Evidence from Indonesia," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1314-1327, December.
    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    6. Tom Tietenberg, 1998. "Disclosure Strategies for Pollution Control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 587-602, April.
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    Cited by:

    1. Kathuria, Vinish & Sterner, Thomas, 2006. "Monitoring and enforcement: Is two-tier regulation robust? -- A case study of Ankleshwar, India," Ecological Economics, Elsevier, vol. 57(3), pages 477-493, May.
    2. Katrin Millock & David Zilberman, 2006. "Collective penalties and inducement of self-reporting," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118778, HAL.
    3. Sacchidananda Mukherjee & Debashis Chakraborty, 2007. "Environment, Human Development and Economic Growth after Liberalisation: An Analysis of Indian States," Working Papers 2007-016, Madras School of Economics,Chennai,India.
    4. Kathuria, Vinish, 2007. "Informal regulation of pollution in a developing country: Evidence from India," Ecological Economics, Elsevier, vol. 63(2-3), pages 403-417, August.

    More about this item


    Industrial estate; two-tier monitoring; common property resource; industry association; nonpoint sources of pollution;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • P28 - Economic Systems - - Socialist Systems and Transition Economies - - - Natural Resources; Environment
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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