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Environmental enforcement when ‘inspectability’ is endogenous: A model with overshooting properties

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  • Anthony Heyes
Abstract
If a firm can influence its monitorability vis-à-vis an environmental regulator, it is shown that increasing the thoroughness of inspections induces the firm to substitute towards more transparent technologies, whilst increasing their frequency may cause substitution the other way. Perversely, when the effect of such substitution is taken into account, an increase in the frequency of inspections (or, equally, the stringency of penalties) may worsen the firm's environmental performance. The agency should favour more thorough inspections than existing theory suggests, particularly in sectors where the scope for such substitution is great. Moreover, when monitorability adjusts only sluggishly to policy shocks (because it is an embodied characteristic of capital, for example) the environmental impacts of increased frequency and increased thoroughness well over- and under-shoot their respective long-run impacts. In assessing regulatory reform, therefore, it is important to leave sufficient time for the class of adjustments identified to occur. The possibility of overshooting can be used as an alternative to existing ‘regulatory capture’ theories to explain why the efficacy of some classes of regulatory reform may fade through time. Copyright Kluwer Academic Publishers 1994

Suggested Citation

  • Anthony Heyes, 1994. "Environmental enforcement when ‘inspectability’ is endogenous: A model with overshooting properties," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(5), pages 479-494, October.
    • Handle: RePEc:kap:enreec:v:4:y:1994:i:5:p:479-494
    DOI: 10.1007/BF00691924
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Kjetil Telle, 2012. "Monitoring and enforcement of environmental regulations. Lessons from a natural field experiment in Norway," Discussion Papers 680, Statistics Norway, Research Department.
    3. Häckner, Jonas & Herzing, Mathias, 2017. "The effectiveness of environmental inspections in oligopolistic markets," Resource and Energy Economics, Elsevier, vol. 48(C), pages 83-97.
    4. Andarge, Tihitina & Lichtenberg, Erik, 2018. "Regulated Firm Strategy under Uncertainty about Regulatory Status," 2018 Annual Meeting, August 5-7, Washington, D.C. 274420, Agricultural and Applied Economics Association.
    5. Kjetil Telle, 2004. "Effects of inspections on plants' regulatory and environmental performance - evidence from Norwegian manufacturing industries," Discussion Papers 381, Statistics Norway, Research Department.
    6. Bernhard Ganglmair & Julia Krämer & Jacopo Gambato, 2024. "Regulatory Compliance with Limited Enforceability: Evidence from Privacy Policies," CRC TR 224 Discussion Paper Series crctr224_2024_547v2, University of Bonn and University of Mannheim, Germany, revised Sep 2024.
    7. Ian MacKenzie & Markus Ohndorf, 2012. "Optimal monitoring of credit-based emissions trading under asymmetric information," Journal of Regulatory Economics, Springer, vol. 42(2), pages 180-203, October.
    8. Coria, Jessica & Villegas-Palacio, Clara, 2010. "Targeted Enforcement and Aggregate Emissions With Uniform Emission Taxes," Working Papers in Economics 455, University of Gothenburg, Department of Economics.
    9. Inés Macho-Stadler & David Pérez-Castrillo, 2010. "Optimal monitoring to implement clean technologies when pollution is random," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(3), pages 277-304, July.
    10. Gerigk, Joschka, 2016. "Emission taxes, lobbying, and incomplete enforcement," VfS Annual Conference 2016 (Augsburg): Demographic Change 145920, Verein für Socialpolitik / German Economic Association.
    11. Marcelo Caffera & Carlos Chávez, 2011. "The Cost-Effective Choice of Policy Instruments to Cap Aggregate Emissions with Costly Enforcement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(4), pages 531-557, December.
    12. 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.
    13. Heyes, Anthony G., 1996. "Cutting environmental penalties to protect the environment," Journal of Public Economics, Elsevier, vol. 60(2), pages 251-265, May.
    14. Stranlund, John K. & Chávez, Carlos A. & Villena, Mauricio G., 2009. "The optimal pricing of pollution when enforcement is costly," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 183-191, September.
    15. Tihitina Andarge & Erik Lichtenberg, 2020. "Regulatory compliance under enforcement gaps," Journal of Regulatory Economics, Springer, vol. 57(3), pages 181-202, June.
    16. Suurmond, Guido, 2007. "The effects of the enforcement strategy," MPRA Paper 21142, University Library of Munich, Germany.
    17. Gupta, Shreekant & Saksena, Shalini & Baris, Omer F., 2019. "Environmental enforcement and compliance in developing countries: Evidence from India," World Development, Elsevier, vol. 117(C), pages 313-327.
    18. Häckner, Jonas & Herzing, Mathias, 2020. "The equilibrium compliance rate among regulated firms," International Review of Law and Economics, Elsevier, vol. 63(C).
    19. Gonzalez, Fidel & Leipnik, Mark & Mazumder, Diya, 2013. "How much are urban residents in Mexico willing to pay for cleaner air?," Environment and Development Economics, Cambridge University Press, vol. 18(3), pages 354-379, June.
    20. Telle, Kjetil, 2013. "Monitoring and enforcement of environmental regulations," Journal of Public Economics, Elsevier, vol. 99(C), pages 24-34.
    21. Jessica Coria & Clara Villegas-Palacio, 2014. "Regulatory Dealing: Technology Adoption Versus Enforcement Stringency Of Emission Taxes," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 451-473, April.
    22. Heyes, Anthony & Doucet, Joseph, 1997. "2-Stage Enforcement and Regulatory Polarisation: a Simple Model with Application to the USEPA," Cahiers de recherche 9717, Université Laval - Département d'économique.

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