An Investigation of Voluntary Discovery and Disclosure of Environmental Violations Using Laboratory Experiments

Abstract

This paper uses laboratory experiments to test individual responses to policies that seek to encourage firms to voluntarily discover and disclose violations of environmental standards. We find that while it is possible to motivate a significant number of voluntary disclosures without adversely affecting environmental quality, this result is sensitive to both the fine for disclosed violations and the assumption that firms know their compliance status without cost. When firms have to expend resources to determine their compliance status, motivating a significant number of violation disclosures yields worse environmental quality. Finally, relative to conventional enforcement, disclosure polices will result in more violations being sanctioned, but fewer of these sanctions are for violations that are uncovered by the government.

Keywords: enforcement, compliance, environmental standards, self-reporting, self-auditing voluntary disclosure

JEL Classification: C91, L51, Q58