Multiple receptor ambient monitoring and firm compliance with environmental taxes under budget and target driven regulatory missions

We analyze the potential for an environmental monitoring agency under different regulatory missions to use multiple measures of ambient pollution levels to induce firm compliance via endogenously determined probabilistic firm-level inspections of polluting activities. Departing from previous analyses, we consider a framework where the regulator has multiple, rather than a single, measures of ambient pollution in a setting where many firms are subject to a self-reported emissions tax that is not perfectly enforceable. Under a budget-driven mission, we show that a regulator can fruitfully utilize the added information from multiple ambient monitoring receptors to induce improved environmental compliance through the creation of strategic interactions among firms. Additionally, our results provide new evidence on the relative efficiency of budget- vs. target-driven environmental enforcement missions.     

Enforcement of pollution regulations in a declining industry

A regulatory agency enforcing compliance in a declining industry might recognize that certain plants would close rather than comply, imposing large costs on the local community. Data on EPA enforcement activity in the U.S. steel industry are examined for evidence of this with a two-equation model linking EPA enforcement decisions and firms' plant-closing decisions. The results indicate that the EPA directed fewer enforcement actions toward plants with a high predicted probability of closing and plants that were major employers in their community; also, plants predicted to face relatively heavy enforcement were more likely to close.     

Firm incentives to promote technological change in pollution control

The process of technological change in pollution control is broken into three basic steps: innovation, diffusion, and optimal agency response. Firm incentives to promote these steps are then examined under five regulatory regimes: direct controls, emission subsidies, emission taxes, free marketable permits, and auctioned marketable permits. On a relative basis, emission taxes and auctioned permits provide the highest firm incentives to promote technological change; at times, free permits generate lower incentives. Direct controls, which are common regulatory tools, usually provide the lowest relative firm incentives to promote technological change.     

The economics of enforcing air pollution controls

The goal of this paper is to determine the likely effect on a firm's control actions of alternative implementation and enforcement policies available to the control agency. Three alternatives are studied, legal enforcement through the new source performance standards set forth by EPA, and two effluent fee enforcement alternatives. First, a generalized model of the effects of implementation and enforcement policies on the firm's control action is developed. This model assumes that the firm is an expected cost minimizer. The model is then applied to the case of particulate matter discharges from coal-fired power plants in order to estimate empirically the effect of policy alternatives on the firm's control efforts. Finally, the results of the model and its empirical application are used to develop policy functions which relate control to the values of various policy parameters. These results lead us to several policy recommendations.     

On optimal audit mechanisms for environmental taxes

We consider the auditing problem of an environmental enforcement agency with fixed audit resources: How to decide which firms to audit after having observed the firms' taxable emissions reports. The goal of the agency is to implement the socially efficient emissions level. The audit mechanism is the agency's sole choice variable, while other variables such as the tax rate on emissions and the fine for non-compliance are determined by other governmental actors. The fines and budget of the agency are constrained in such a way that the common random audit mechanism fails to implement socially efficient emissions. Assuming perfect information among the firms, we derive an optimal audit mechanism capable of implementing the socially efficient emissions level. The optimal audit mechanism creates a contest exploiting the strategic interdependencies between the firms, where the probability of winning (not being audited) for each firm depends on costly efforts (their taxable emissions reports).     

The social welfare implications of industry self-auditing

The Environmental Protection Agency's (EPA's) audit policy authorizes reduced penalties for firms that voluntarily undertake compliance audits and then correct and report any discovered violations to the agency. While the EPA claims the policy is a success, this paper joins a growing literature in questioning that claim. A game-theoretic model of the audit policy is developed where the goal of enforcement is remediation and the agency is unable to commit to a pre-announced inspection policy. Self-auditing is beneficial because it permits both self-reporting and self-policing to occur; however additional costs are imposed on firms. Self-auditing is more likely to be socially beneficial when the damages caused by violations are large. The current audit policy explicitly excludes violations that result in serious actual or potential harm. When violations are small, as most current disclosures under the audit policy are, firm self-auditing is likely to increase social costs.     

Do environmental regulations disproportionately affect small businesses? Evidence from the Pollution Abatement Costs and Expenditures survey

This paper examines whether the impact of environmental regulations differs by the size of the business. We consider the net effect of statutory, enforcement, and compliance asymmetries by estimating the relationship between plant size and pollution abatement expenditures, using establishment-level data on U.S. manufacturers from the Census Bureau's Pollution Abatement Costs and Expenditures (PACE) survey and from its Annual Survey of Manufactures and Census of Manufactures. We model establishments' pollution abatement operating costs (PAOC) per unit of economic activity as a function of establishment size, industry, state, and year. Our results show that PAOC intensity increases with establishment and firm size.     

Do environmental regulations disproportionately affect small businesses? Evidence from the Pollution Abatement Costs and Expenditures survey

This paper examines whether the impact of environmental regulations differs by the size of the business. We consider the net effect of statutory, enforcement, and compliance asymmetries by estimating the relationship between plant size and pollution abatement expenditures, using establishment-level data on U.S. manufacturers from the Census Bureau's Pollution Abatement Costs and Expenditures (PACE) survey and from its Annual Survey of Manufactures and Census of Manufactures. We model establishments' pollution abatement operating costs (PAOC) per unit of economic activity as a function of establishment size, industry, state, and year. Our results show that PAOC intensity increases with establishment and firm size.     

Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System

The literature on noncompliant firms in transferable emissions permit systems offers little guidance to policymakers that must determine how to commit resources to monitor firms and punish violations in such systems. We consider how a budget-constrained enforcement authority that seeks to minimize aggregate noncompliance in a transferable emissions permit system should allocate its monitoring and enforcement efforts among heterogeneous firms. With a conventional model of firm behavior in a transferable permit system, we find that differences in the allocation of monitoring and enforcement effort between any two types of firms should be independent of differences in their exogenous characteristics.     

The siting impasse and a rational choice model of regulatory behavior: An agency for power plant siting

Reasons for the current siting impasse, including participatory activism, regulatory failure, the multiplication of considered interests, and the “investigative caveat,” are reviewed, and the existing logic of regulator behavior, viewed as a rational choice model, is summarized. Three sets of goals for agency participants are identified: personal goals of agency decision-makers, organizational goals of the agency as a whole, and goals of agency clients; and the incentive system of a new administrative agency structured so as to make satisfaction of these goals contribute toward informed and impartial decision-making. Major structural components of the agency would be a Director, a Corps of Examiners, counsel(s) for special interest(s) of special merit, a Public Counsel, and a Research and Information Office. The model is applied to the case of a regional or state-level agency to handle power plant siting.     

The optimal pricing of pollution when enforcement is costly

We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms’ abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators’ actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms’ abatement costs or monitoring costs.     

Locational pricing of an environmental input

This paper models the joint production of outputs and heterogeneous effluents for firms exogenously located along a river. We derive location-specific water quality standards that reflect the nonsymmetric impact of upstream discharge relative to that same discharge further downstream. Depending on the type of sequential firm interdependence, a water control agency may or may not be able to insure efficient input choices by decentralizing these choices to the firms. Under certain conditions we can derive site-specific price aggregates to reflect the social imputed value of a particular type effluent released at a given site. If each firm is assigned responsibility for cumulative water quality just below its drain pipe, then water quality control may be modeled as an application of nonsymmetric recursive decision making.     

The real effect of legal institutions: Environmental courts and firm environmental protection expenditure

This paper evaluates the real effects of environmental justice reform on environmental governance at the firm level. Using the establishment of environmental courts in China as a quasi-natural experiment, our difference-in-differences estimation shows that: (1) environmental courts significantly enhance environmental investment by firms, and this relationship is robust to different specifications and alternative measures; (2) three possible channels are the improved levels of justice and enforcement of environmental protection, and the mitigation of local government intervention; (3) our findings are particularly pronounced in subsamples with severe local protectionism, state-owned enterprises (SOEs), and non-SOEs with political connections; (4) at the city-level, environmental courts significantly increase air quality and promote cities to cross the inflection point of the environmental Kuznets curve earlier. Overall, this paper reveals the micro-mechanisms behind the real effects of environmental justice on firm environmental investment, thus providing timely implications for regulators concerned with environmental protection.     

Enforcement costs and the incentive to evade controls on production

Economists have long favored emission taxes as a method of controlling pollution. One reason for the widespread support of emission taxes has been the assumption that emission taxes would be easier to enforce than other policies. However, recent developments in the discussion of pollution control allow more specific comparisons of enforcement costs and yield the conclusion that there may exist at least one alternate regulatory scheme that would be easier to enforce than emission taxes.     

Value chains and soft commodities in Amazonia. Regulatory prospects for commodified biodiversity according to the glocal production chain of açaí

ABSTRACT

This triple case study attempts, from the viewpoint of economic and environmental anthropology, to take into account and to assess pertinent cultural, political, institutional, and economic factors that have an impact on how the açaí value chain develops or restrains according to the given regulatory frameworks. Based on the common-pool resources approach (CPR), the study examines how institutional actors negotiate in a local/global (glocal) dynamic and how from these different scales, they contest and intertwine while pursuing use, access, and management strategies for the açaí production. The article aims to contribute with anthropological insights to the LULC research by underlining the agency of the subjects of land use and tenure policies in Amazonia; to enhance the prominence of local actors and to promote the cultural and economic value of their traditional practices and institutions.     

Enforcement and price controls in emissions trading

This paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms' abatement costs. The analysis highlights how an enforcement strategy can cause abatement-cost risk to be transmitted to enforcement costs via the price of permits. When this occurs, accommodating the effect of abatement-cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second-best optimal values. However, it is possible to design an enforcement strategy that shields enforcement costs from abatement-cost risk by tying sanctions directly to permit prices. This enforcement strategy stabilizes enforcement effort, the optimal permit supply and price controls are independent of enforcement costs, and the policy produces the second-best optimal outcome.     

Tying enforcement to prices in emissions markets: An experimental evaluation

We present results from laboratory emissions permit markets designed to investigate the transmission of abatement cost risk to firms' compliance behavior and regulatory enforcement strategies. With a fixed expected marginal penalty, abatement cost shocks produced significant violations and emissions volatility as predicted. Tying the monitoring probability to average permit prices effectively eliminated noncompliance, but transmitted abatement cost risk to monitoring effort. Tying the penalty to average prices reduced violations, but did not eliminate them. Some individuals in these treatments sold permits at low prices, presumably in an attempt to weaken enforcement. While tying sanctions directly to prevailing permit prices has theoretical and practical advantages over tying monitoring to prices, our results suggest that tying sanctions to prices may not be as effective as predicted without additional modifications.     

Animal agency in wildlife conservation and management

Wildlife conservation and management (WCM) practices have been historically drawn from a wide variety of academic fields, yet practitioners have been slow to engage with emerging conversations about animals as complex beings, whose individuality and sociality influence their relationships with humans. We propose an explicit acknowledgement of wild, nonhuman animals as active participants in WCM. We examined 190 studies of WCM interventions and outcomes to highlight 3 common assumptions that underpin many present approaches to WCM: animal behaviors are rigid and homogeneous; wildlife exhibit idealized wild behavior and prefer pristine habitats; and human–wildlife relationships are of marginal or secondary importance relative to nonhuman interactions. We found that these management interventions insufficiently considered animal learning, decision-making, individuality, sociality, and relationships with humans and led to unanticipated detrimental outcomes. To address these shortcomings, we synthesized theoretical advances in animal behavioral sciences, animal geographies, and animal legal theory that may help conservation professionals reconceptualize animals and their relationships with humans. Based on advances in these fields, we constructed the concept of animal agency, which we define as the ability of animals to actively influence conservation and management outcomes through their adaptive, context-specific, and complex behaviors that are predicated on their sentience, individuality, lived experiences, cognition, sociality, and cultures in ways that shape and reshape shared human–wildlife cultures, spaces, and histories. Conservation practices, such as compassionate conservation, convivial conservation, and ecological justice, incorporate facets of animal agency. Animal agency can be incorporated in conservation problem-solving by assessing the ways in which agency contributes to species’ survival and by encouraging more adaptive and collaborative decision-making among human and nonhuman stakeholders.     

An empirical analysis of economic strategies for controlling air pollution

In evaluating current environmental protection policy, economists often note that current regulations are more costly than necessary to meet environmental quality standards. While the a priori case is strong that current regulatory approaches are resulting in higher-than-necessary costs to attain environmental standards, there is relatively little empirical evidence to support this claim. The purpose of this paper is to supply some of the missing evidence by presenting the results of one study that assesses some of the potential savings associated with implementing economic, rather than command-and-control, regulatory approaches to abate one type of air pollution in one region of the country. Specifically, the paper examines the costs of meeting a prospective short-term standard for nitrogen dioxide under a range of alternative emissions control strategies for stationary sources of nitrogen oxide emissions in the Chicago Air Quality Control Region. The alternative strategies that are considered range from those that might result under current regulatory policy to those that economic policy approaches (such as emissions charges or marketable permits) are designed to implement. The analysis shows that the most efficient program of emissions controls may be more than an order of magnitude less costly than current regulatory strategies, and that economic approaches have additional advantages over more conventional regulatory approaches.     

Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations

Motivated by the nature of U.S. laws, a model is developed for a firm that maximizes expected profit and faces imperfectly enforceable pollution standards with imperfectly enforceable reporting requirements. Some previous models of imperfectly enforceable standards and taxes are special cases of this general mode. When the fine for violating the pollution standard is linear in excess pollution, the form will equate the marginal cost of control to the marginal fine rate, and thus actual pollution will be insensitive to enforcement parameters related to under-reporting. The more complex comparative statics that exist when the fine is non-linear are analyzed, and comparisons with other models are made.