NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations

Wesley Blundell, Gautam Gowrisankaran, Ashley Langer

NBER Working Paper No. 24810
Issued in July 2018, Revised in February 2020
NBER Program(s):Environment and Energy Program, Industrial Organization Program, Public Economics Program

The U.S. Environmental Protection Agency uses a dynamic approach to enforcing air pollution regulations, with repeat offenders subject to high fines and designation as high priority violators (HPV). We estimate the value of dynamic enforcement by developing and estimating a dynamic model of a plant and regulator, where plants decide when to invest in pollution abatement technologies. We use a fixed grid approach to estimate random coefficient specifications. Investment, fines, and HPV designation are costly to most plants. Eliminating dynamic enforcement would raise pollution damages by 164% with constant fines or raise fines by 519% with constant pollution damages.

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Document Object Identifier (DOI): 10.3386/w24810

 
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