A Facility-Level Analysis of the Long-Term Consequences of Environmental Auditing Among Hazardous Waste Generators

Abstract

Several rationales recently proposed to explain the willingness of firms to voluntarily conduct environmental audits suggest the potential for environmental audits to impact compliance outcomes in the long run. Using a unique facility-level dataset from Michigan, we examine the determinants of environmental auditing and the effects of environmental auditing on inspection frequency and long-term compliance with the U.S. Resource Conservation and Recovery Act (RCRA) among hazardous waste generators. Our empirical methodology accounts for the potential endogeneity of the audit outcome and censoring of the future compliance measure. We find that larger facilities and those subject to more stringent regulations are more likely to audit. We also find that facilities with poor compliance records are less likely to audit. However, we find no significant long-run impact of auditing on inspection frequency or RCRA compliance among these Michigan facilities.

Keywords: environmental auditing, hazardous waste, compliance, enforcement

JEL Classification: Q53, Q58, L51