Monitoring and Enforcement of Environmental Policy

Abstract

This article reviews the economics literature on monitoring and enforcement of environmental policy. In the last few years there has been a rapid growth in both theoretical developments and empirical studies of monitoring and enforcement. Various factors have contributed to this growth, including (1) the growth of the law and economics literature and its interest in issues of law enforcement and penalties, (2) increased emphasis on enforcement by EPA and other regulatory agencies, and (3) the availability of data on firm compliance. The economics literature on environmental monitoring and enforcement has closely followed the related field of optimal penalties in the law and economics literature.

The scope of the article includes both public and private mechanisms designed to compel firms (and individuals) to comply with environmental formal regulations and informal rules of conduct or social norms. For purposes of this paper, monitoring and enforcement includes monitoring and inspections by enforcement authorities as well as sanctions, remedial actions, and other mechanisms designed to punish and/or bring a firm into compliance. It also includes non-governmental actions such as citizen suits authorized by the government and informal mechanisms such as public pressure. It does not include the role of liability laws (torts, nuisance actions, etc.) in compelling polluters to reduce emissions.

The paper begins with a fundamental question--why do firms comply with environmental laws? Next, I consider the various economic theories of government behavior and how they have been used to help explain observed enforcement behavior. Following these positive analyses, I turn to normative theories of optimal penalties as it relates to environmental regulation, including recent developments that have incorporated the complexities associated with sanctioning both organizations and their employees. The paper continues with an assessment of empirical studies on environmental enforcement. In addition to studies of government enforcement, I examine empirical studies of private enforcement mechanisms (e.g., citizen suits) and the role of market forces in compelling compliance behavior. A concluding section assesses the most critical gaps in our knowledge and contains suggestions for future research.

JEL Classification: Q28, K32