Enforcement and over-compliance

Abstract

Economists generally view environmental enforcement as a tool to secure compliance with regulations. This paper demonstrates that credible enforcement significantly increases statutory over-compliance with regulations as well. We find that many plants with discharges typically below legally permitted levels reduce discharges further when regulators issue fines, even on other plants. Also, non-compliant plants often respond to sanctions by reducing discharges well beyond reductions required by law. Thus, increased enforcement generates substantial discharge reductions above and beyond those expected from simply deterring violations.JEL Classifications: K42; Q58; Q53

Economic Perspectives on Corporate Social Responsibility

“…If different pollutants are complementary through technology, e.g., S O 2 and mercury, then what amounts to compliance with more stringent regulation of pollutant A might appear as CSR for pollutant B. This leverage effect of jointly determined pollutants has been addressed by Shimshack and Ward (2008), who conclude that under these circumstances observed overcompliance is driven by traditional regulatory incentives. This is not CSR, but mere compliance.…”

“…Similarly, Decker (2003) finds that voluntary pollutant reductions shorten the time it takes firms to subsequently receive permits for major new projects and discharges. Other authors find that when environmental behavior has a stochastic component, plants intentionally overcomply to build a strategic buffer zone against accidental violation and subsequent punishment (Bandyopadhyay and Horowitz 2006;Shimshack and Ward 2008). For example, Shimshack and Ward find that plants with pollution discharges well below permitted levels reduce discharges further beyond compliance when the perceived regulatory threat increases.…”

Environment and Biodiversity: Priorities for Protecting Natural Capital and Competitiviness in Latin America and the Caribbean

“…The empirical evidence shows that countries that have good environmental performance also exercise their ability to monitor and penalize violations proportionate to the environmental damage (INECE 2009, OECD 2009. For example, a study by Shimshack and Ward (2008) indicates that the imposition of fines is not only an effective means of reducing violations by the sanctioned companies, it can also indirectly improve environmental performance of firms that have not been fined. The study also shows that the use of random inspections has positive results in terms of environmental conduct and concludes that an optimal inspection and sanctions system markedly improves the environmental performance of companies at low cost.…”

Prescriptive measures for environmental performance: emission standards, overcompliance, and monitoring

“…Note that the role of monitoring and enforcement on compliance with conventional standards is well documented (see Stranlund et al 2009;Shimshack and Ward 2008;Heyes 2000). Also, empirical evidence shows that inspections improve compliance (Magat and Viscusi 1990;Shimshack and Ward 2005;Gray and Shimshack 2011).…”