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  3. American Economic Review
  4. August 2020
  5. Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations

  • Wesley Blundell
  • Gautam Gowrisankaran
  • Ashley Langer
American Economic Review
vol. 110, no. 8, August 2020
(pp. 2558–85)
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Abstract

The US Environmental Protection Agency (EPA) 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 percent with constant fines or raise fines by 519 percent with constant pollution damages.

Citation

Blundell, Wesley, Gautam Gowrisankaran, and Ashley Langer. 2020. "Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations." American Economic Review, 110 (8): 2558–85. DOI: 10.1257/aer.20181012

Additional Materials

JEL Classification

  • Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
  • Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
  • Q58 Environmental Economics: Government Policy