IDEAS home Printed from https://ideas.repec.org/p/awi/wpaper/0699.html
   My bibliography  Save this paper

Competitive vs. Random Audit Mechanisms in Environmental Regulation: Emissions, Self-Reporting, and the Role of Peer Information

Author

Listed:
  • Goeschl, Timo
  • Oestreich, Marcel
  • Soldà, Alice

Abstract

In a simplifying analytical framework with endogenous levels of actual and self-reported emissions, we consolidate the existing literature into three main hypotheses about the relative merits, for a resource-constrained regulator, of random (RAM) and competitive (CAM) audit mechanisms in the presence or absence of peer information about actual emissions. Testing the three hypotheses in a quasi-laboratory experiment (N = 131), we find supportive evidence that CAM always induce more truthful reporting than RAM. Moreover, we provide the empirical validation of the theoretical prediction that CAM can succeed in aligning actual emissions more closely with the social optimum in the presence of peer information when RAM cannot. Behavioral mechanisms prevent reaching the first-best outcome.

Suggested Citation

  • Goeschl, Timo & Oestreich, Marcel & Soldà, Alice, 2021. "Competitive vs. Random Audit Mechanisms in Environmental Regulation: Emissions, Self-Reporting, and the Role of Peer Information," Working Papers 0699, University of Heidelberg, Department of Economics.
    • Handle: RePEc:awi:wpaper:0699
    Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
    as

    Download full text from publisher

    File URL: http://nbn-resolving.de/urn/resolver.pl?urn=urn:nbn:de:bsz:16-heidok-294749
    File Function: Frontdoor page on HeiDOK
    Download Restriction: no
    File URL: https://archiv.ub.uni-heidelberg.de/volltextserver/29474/7/Goeschl_Oestreich_Solda_2021_dp699.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Malik Arun S., 1993. "Self-Reporting and the Design of Policies for Regulating Stochastic Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 241-257, May.
    2. Friesen, Lana & Gangadharan, Lata, 2013. "Designing self-reporting regimes to encourage truth telling: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 90-102.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    4. Timothy N. Cason & Lana Friesen & Lata Gangadharan, 2021. "Complying with environmental regulations: experimental evidence," Chapters, in: Ananish Chaudhuri (ed.), A Research Agenda for Experimental Economics, chapter 4, pages 69-92, Edward Elgar Publishing.
    5. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
    6. Harford, Jon D., 1987. "Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 293-303, September.
    7. Oestreich, Andreas Marcel, 2017. "On optimal audit mechanisms for environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 62-83.
    8. Scott M. Gilpatric & Christian A. Vossler & Michael McKee, 2011. "Regulatory enforcement with competitive endogenous audit mechanisms," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 292-312, June.
    9. Robert Innes, 2017. "Lie aversion and self-reporting in optimal law enforcement," Journal of Regulatory Economics, Springer, vol. 52(2), pages 107-131, October.
    10. Bock, Olaf & Baetge, Ingmar & Nicklisch, Andreas, 2014. "hroot: Hamburg Registration and Organization Online Tool," European Economic Review, Elsevier, vol. 71(C), pages 117-120.
    11. Eric Helland, 1998. "The Enforcement Of Pollution Control Laws: Inspections, Violations, And Self-Reporting," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 141-153, February.
    12. Scott Marchi & James Hamilton, 2006. "Assessing the Accuracy of Self-Reported Data: an Evaluation of the Toxics Release Inventory," Journal of Risk and Uncertainty, Springer, vol. 32(1), pages 57-76, January.
    13. Cason, Timothy N. & Friesen, Lana & Gangadharan, Lata, 2016. "Regulatory performance of audit tournaments and compliance observability," European Economic Review, Elsevier, vol. 85(C), pages 288-306.
    14. Chen, Daniel L. & Schonger, Martin & Wickens, Chris, 2016. "oTree—An open-source platform for laboratory, online, and field experiments," Journal of Behavioral and Experimental Finance, Elsevier, vol. 9(C), pages 88-97.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ralph‐C. Bayer, 2022. "The double dividend of relative auditing—Theory and experiments on corporate tax enforcement," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1433-1462, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Timo Goeschl & Marcel Oestreich & Alice Soldà, 2023. "Compliance and Truthfulness: Leveraging Peer Information with Competitive Audit Mechanisms," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 947-979.
    2. Häckner, Jonas & Herzing, Mathias, 2017. "The effectiveness of environmental inspections in oligopolistic markets," Resource and Energy Economics, Elsevier, vol. 48(C), pages 83-97.
    3. 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).
    4. Häckner, Jonas & Herzing, Mathias, 2020. "The equilibrium compliance rate among regulated firms," International Review of Law and Economics, Elsevier, vol. 63(C).
    5. Miloš Fišar & Ondřej Krčál & Jiří Špalek & Rostislav Staněk & James Tremewan, 2019. "A Competitive Audit Selection Mechanism with Incomplete Information," MUNI ECON Working Papers 2019-08, Masaryk University, revised Feb 2023.
    6. Alm, James & Shimshack, Jay, 2014. "Environmental Enforcement and Compliance: Lessons from Pollution, Safety, and Tax Settings," Foundations and Trends(R) in Microeconomics, now publishers, vol. 10(4), pages 209-274, December.
    7. Oestreich, Andreas Marcel, 2017. "On optimal audit mechanisms for environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 62-83.
    8. Timothy N. Cason & Lana Friesen & Lata Gangadharan, 2021. "Complying with environmental regulations: experimental evidence," Chapters, in: Ananish Chaudhuri (ed.), A Research Agenda for Experimental Economics, chapter 4, pages 69-92, Edward Elgar Publishing.
    9. Robert Innes, 2017. "Lie aversion and self-reporting in optimal law enforcement," Journal of Regulatory Economics, Springer, vol. 52(2), pages 107-131, October.
    10. Inés Macho-Stadler, 2008. "Environmental regulation: choice of instruments under imperfect compliance," Spanish Economic Review, Springer;Spanish Economic Association, vol. 10(1), pages 1-21, March.
    11. Mechtenberg, Lydia & Muehlheusser, Gerd & Roider, Andreas, 2020. "Whistleblower protection: Theory and experimental evidence," European Economic Review, Elsevier, vol. 126(C).
    12. Heinicke, Franziska & Rosenkranz, Stephanie & Weitzel, Utz, 2019. "The effect of pledges on the distribution of lying behavior: An online experiment," Journal of Economic Psychology, Elsevier, vol. 73(C), pages 136-151.
    13. Fochmann, Martin & Wolf, Nadja, 2019. "Framing and salience effects in tax evasion decisions – An experiment on underreporting and overdeducting," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 260-277.
    14. Huber, Christoph & Huber, Jürgen, 2020. "Bad bankers no more? Truth-telling and (dis)honesty in the finance industry," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 472-493.
    15. Livernois, John & McKenna, C. J., 1999. "Truth or consequences: Enforcing pollution standards with self-reporting," Journal of Public Economics, Elsevier, vol. 71(3), pages 415-440, March.
    16. Agnar Sandmo, 2002. "Efficient Environmental Policy with Imperfect Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 85-103, September.
    17. Macho-Stadler, Ines & Perez-Castrillo, David, 2006. "Optimal enforcement policy and firms' emissions and compliance with environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 110-131, January.
    18. Anirudh Tagat, 2019. "The Taxman Cometh: Behavioural Approaches to Improving Tax Compliance in India," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 3(1), pages 12-22, March.
    19. Sang-Hyun Kim, 2015. "Time to Come Clean? Disclosure and Inspection Policies for Green Production," Operations Research, INFORMS, vol. 63(1), pages 1-20, February.
    20. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2018. "Cheating in the Lab Predicts Fraud in the Field: An Experiment in Public Transportation," Management Science, INFORMS, vol. 64(3), pages 1081-1100, March.

    More about this item

    Keywords

    environmental regulation; regulatory compliance; tournament theory; mechanism design; Laboratory experiment;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:awi:wpaper:0699. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabi Rauscher (email available below). General contact details of provider: https://edirc.repec.org/data/awheide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.