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Challenging the Enforcement of Environmental Regulation

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  • Clifford Nowell
  • Jason F. Shogren

Abstract

If a firm can contest the enforcement of an environmental regulation, then neither increasing the probability nor severity of the fine will guarantee a reduction in the illegal dumping of waste. The only policy that unambiguously decreases illegal dumping is lowering the price at legal dump sites because increasing the probability or severity triggers investment into a legal war chest to challenge the fine, while a decrease in the costs of legal dumping does not. If the regulator can only imperfectly monitor a firm's behavior so the firm can be accused of another firm's behavior, then strategic commitment to challenge enforcement will lead to overinvestment in the legal war chest, an increased fraction of illegal dumping, and an overall increase in total costs relative to the nonstrategic case.

Suggested Citation

  • Clifford Nowell & Jason F. Shogren, 1991. "Challenging the Enforcement of Environmental Regulation," Center for Agricultural and Rural Development (CARD) Publications 91-wp80, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:91-wp80
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    Cited by:

    1. Kritikos, Alexander S., 2004. "A penalty system to enforce policy measures under incomplete information," International Review of Law and Economics, Elsevier, vol. 24(3), pages 385-403, September.
    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. Cheng, Chu-Chuan & Lai, Yu-Bong, 2012. "Does a stricter enforcement policy protect the environment? A political economy perspective," Resource and Energy Economics, Elsevier, vol. 34(4), pages 431-441.
    4. Häckner, Jonas & Herzing, Mathias, 2020. "The equilibrium compliance rate among regulated firms," International Review of Law and Economics, Elsevier, vol. 63(C).
    5. Wang, Hua & Wheeler, David, 2005. "Financial incentives and endogenous enforcement in China's pollution levy system," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 174-196, January.
    6. Fumitoshi Mizutani & Eri Nakamura, 2016. "Factors Affecting Inefficiency Level: Stochastic Frontier Analysis of Public Utility Firms in Japan," Discussion Papers 2016-02, Kobe University, Graduate School of Business Administration.
    7. Heyes, Anthony, 2001. "Honesty in a regulatory context - good thing or bad?," European Economic Review, Elsevier, vol. 45(2), pages 215-232, February.
    8. Gerigk, Joschka, 2016. "Emission taxes, lobbying, and incomplete enforcement," VfS Annual Conference 2016 (Augsburg): Demographic Change 145920, Verein für Socialpolitik / German Economic Association.
    9. Fumitoshi Mizutani & Eri Nakamura, 2017. "How do governance factors affect inefficiency? Stochastic frontier analysis of public utility firms in Japan," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(3), pages 267-289, September.
    10. Fumitoshi Mizutani & Eri Nakamura, 2013. "Regulation, Competition, Diversification, Governance and Costs: An Empirical Analysis of Public Utility and Manufacturing Firms in Japan," Discussion Papers 2013-25, Kobe University, Graduate School of Business Administration.
    11. Fumitoshi Mizutani & Eri Nakamura, 2014. "What Most Affects A Firm' s Costs: Internal or External Factors, or Both?," Discussion Papers 2014-22, Kobe University, Graduate School of Business Administration.
    12. Tihitina Andarge & Erik Lichtenberg, 2020. "Regulatory compliance under enforcement gaps," Journal of Regulatory Economics, Springer, vol. 57(3), pages 181-202, June.
    13. Vicki M. Bier & Shi‐Woei Lin, 2013. "Should the Model for Risk‐Informed Regulation be Game Theory Rather than Decision Theory?," Risk Analysis, John Wiley & Sons, vol. 33(2), pages 281-291, February.
    14. Dongryul Lee & Kyung Hwan Baik, 2017. "Concealment and verification over environmental regulations: a game-theoretic analysis," Journal of Regulatory Economics, Springer, vol. 51(3), pages 235-268, June.
    15. Tsaur‐Chin Wu & Ching‐Yang Liang & Kun‐Li Lin, 2022. "Environmental effectiveness of tax compliance policy in the presence of labor unions," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(2), pages 137-153, June.

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