Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations
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.
We thank Dan Ackerberg, Christian Belzil, Esther Duflo, Chase Eck, Liran Einav, Paul Ellickson, Meredith Fowlie, Wayne Gray, Tobias Häaggmark, Charles Hodgson, Alex Hollingsworth, Karam Kang, Anatolii Kokoza, Derek Lemoine, Bentley MacLeod, Kelli Marquardt, Andy McLennan, Shaun McRae, Ivan Rudik, Nick Ryan, Paul Scott, Jay Shimshack, Kenneth Train, Kyle Wilson, Jonathan Williams, Tiemen Woutersen, Chenyu Yang, anonymous referees, and seminar participants at numerous institutions for helpful comments. We are grateful to Yujia Peng for excellent research assistance. Our computations used the University of Arizona High Performance Computing (HPC) resources supported by the UA TRIF, UITS, and RDI and maintained by the UA Research Technologies Department. Terri Dykes and Jason Swift at EPA were generous in helping us to understand the details of the data and Clean Air Act enforcement generally. Gowrisankaran acknowledges funding from the National Science Foundation (Grant SES-1824348).. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Wesley Blundell & Gautam Gowrisankaran & Ashley Langer, 2020. "Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations," American Economic Review, vol 110(8), pages 2558-2585.