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Enforcement Leverage with Fixed Inspection Capacity

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  • Liu, Lirong
  • Neilson, William

Abstract

We develop a targeting enforcement mechanism in the context of fixed inspection capacity due to budget constraint. A fixed number of firms are selected for inspection and those with the highest emissions are targeted with higher inspection probability. This structure induces dynamic rank-order tournaments among inspected firms. The differentiated inspection probabilities between targeted and untargeted firms induces leverage effects while the rank-order tournament induces competition effect. The combinations of leverage and competition effects give firms more incentive to abate and stay in compliance. We use numerical simulations to show that targeted firms should be inspected with high probability and that about 2/3 of inspections should be allocated to targeted firms. Furthermore, even suboptimal allocations of inspections and firms to the targeted and untargeted groups can out-perform static enforcement schemes.

Suggested Citation

  • Liu, Lirong & Neilson, William, 2013. "Enforcement Leverage with Fixed Inspection Capacity," Strategic Behavior and the Environment, now publishers, vol. 3(4), pages 305-328, August.
    • Handle: RePEc:now:jnlsbe:102.00000034
    DOI: 10.1561/102.00000034
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Springborn, Michael R. & Lindsay, Amanda R. & Epanchin-Niell, Rebecca S., 2016. "Harnessing enforcement leverage at the border to minimize biological risk from international live species trade," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PB), pages 98-112.
    2. Earnhart, Dietrich & Friesen, Lana, 2021. "Use of competitive endogenous audit mechanisms by federal and state inspectors within environmental protection agencies," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    3. Julianna M. Butler & Scott M. Gilpatric & Christian A. Vossler, 2017. "Motivating Workers through Task Assignment: A Dynamic Model of Up-and-Down Competition for Status," Working Papers 2017-03, University of Tennessee, Department of Economics.
    4. Gilpatric, Scott M. & Vossler, Christian A. & Liu, Lirong, 2015. "Using competition to stimulate regulatory compliance: A tournament-based dynamic targeting mechanism," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 182-196.
    5. Lirong Liu & Zhou Yang, 2020. "Leveraged enforcement under the EPA’s High Priority Violation Policy," Empirical Economics, Springer, vol. 58(3), pages 1279-1304, March.

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    More about this item

    Keywords

    Monitoring and enforcement; Environmental regulation; Targeting; Leveraging; Rank-order tournament;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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