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The Impact of Sanctions and Inspections on Firms’ Environmental Compliance Decisions

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  • Rousseau Sandra

    (K.U.Leuven-Center for Economic Studies)

Abstract

Firms’ compliance decisions are expected to be strongly influenced by the expected fine for non-compliance with environmental regulations. In this paper we measure the effect of the probability of inspection and the size of the fine – jointly and separately – on the compliance decisions made by textile firms in Flanders. The results confirm the deterrence effect of increasing inspections, but they do not support a similar finding for monetary sanctions. The low levels of the sanctions that courts levy and the rapidly increasing marginal abatement costs imply that firms’ compliance decisions are not positively affected by the imposed penalties. However, we do find that it might be welfare enhancing to occasionally scan a selection of firms or sectors more deeply since the number of detected violations raises significantly as a consequence.

Suggested Citation

  • Rousseau Sandra, 2007. "The Impact of Sanctions and Inspections on Firms’ Environmental Compliance Decisions," Energy, Transport and Environment Working Papers Series ete0704, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0704
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    References listed on IDEAS

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    Cited by:

    1. Germani, Anna Rita & Morone, Andrea & Morone, Piergiuseppe & Scaramozzino, Pasquale, 2013. "Discretionary enforcement and strategic interactions between firms, regulatory agency and justice department: a theoretical and empirical investigation," MPRA Paper 51369, University Library of Munich, Germany.
    2. Anna Rita Germani & Pasquale Scaramozzino & Andrea Morone & Piergiuseppe Morone, 2017. "Discretionary enforcement and strategic interactions between enforcement agencies and firms: a theoretical and laboratory investigation," Journal of Regulatory Economics, Springer, vol. 52(3), pages 255-284, December.
    3. Júlia Gallego Ziero Uhr & André Luis Squarize Chagas, Daniel de Abreu Pereira Uhr, Renan Porn Peres, 2017. "A study on environmental infractions for Brazilian municipalities: a spatial dynamic panel approach," Working Papers, Department of Economics 2017_13, University of São Paulo (FEA-USP).

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    Keywords

    Monitoring and enforcement; environmental regulations; textile sector;
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