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Bayesian Learning and Regulatory Deterrence: Evidence from Oil and Gas Production

Author

Listed:
  • Peter Maniloff

    (Division of Economics and Business, Colorado School of Mines)

Abstract

This paper proposes a Bayesian learning model of regulatory enforcement. Firms exert compliance effort based on their belief about a regulator's effort level. Firms use regulatory actions to learn about the regulator and update their own compliance efforts accordingly. This theoretical model suggests that deterrence will be most effective when regulators have discretion or when firms are inexperienced. Econometric analysis of inspections of Pennsylvania oil and gas wells supports these hypothesis. This work provides a causal mechanism for the commonly observed phenomenon of general deterrence in which regulatory actions towards one firm lead other fims to increase their own compliance.

Suggested Citation

  • Peter Maniloff, 2016. "Bayesian Learning and Regulatory Deterrence: Evidence from Oil and Gas Production," Working Papers 2016-04, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201604
    as

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    File URL: http://econbus-papers.mines.edu/working-papers/wp201604.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    enforcement; deterrence; reputation oil and gas; hydraulic fracturing;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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