Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations
The U.S. Environmental Protection Agency uses a dynamic approach to environmental enforcement for air pollution, 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 emissions damages by 167% with constant fines or raise fines by 533% with constant pollution.
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Document Object Identifier (DOI): 10.3386/w24810