Enforcement Spillovers: Lessons from Strategic Interactions in Regulation and Product Markets

66 Pages Posted: 25 Sep 2015 Last revised: 22 Feb 2019

See all articles by Mary F. Evans

Mary F. Evans

Claremont McKenna College - Robert Day School of Economics and Finance

Scott M. Gilpatric

University of Tennessee

Jay Shimshack

University of Virginia - Frank Batten School of Leadership and Public Policy

Date Written: August 26, 2015

Abstract

We explore mechanisms driving enforcement spillovers - when sanctions at one entity influence behavior at other entities. Our model illustrates when spillovers arise from a regulatory channel and when they arise from a channel not emphasized in the existing literature: product markets. Using facility-by-month data from Clean Water Act manufacturers, we find that penalties generate strong positive spillovers for other facilities facing the same authority. We find suggestive evidence that penalties generate negative spillovers for facilities in the same industry but facing a different authority. Results are consistent with spillovers driven by strategic interactions in both regulation and product markets.

Keywords: general deterrence, strategic substitutes, strategic complements, pollution policy

JEL Classification: K42, L51, Q58

Suggested Citation

Evans, Mary F. and Gilpatric, Scott M. and Shimshack, Jay, Enforcement Spillovers: Lessons from Strategic Interactions in Regulation and Product Markets (August 26, 2015). Claremont McKenna College Robert Day School of Economics and Finance Research Paper. Available at SSRN: https://ssrn.com/abstract=2664765 or http://dx.doi.org/10.2139/ssrn.2664765

Mary F. Evans (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909.607.3423 (Phone)

Scott M. Gilpatric

University of Tennessee ( email )

508 Stokely Management Center
Knoxville, TN 37996-0550
United States
865-974-1696 (Phone)

Jay Shimshack

University of Virginia - Frank Batten School of Leadership and Public Policy ( email )

235 McCormick Rd.
P.O. Box 400893
Charlottesville, VA 22904-4893
United States

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