Working Paper: NBER ID: w24810
Authors: Wesley Blundell; Gautam Gowrisankaran; Ashley Langer
Abstract: The U.S. Environmental Protection Agency 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% with constant fines or raise fines by 519% with constant pollution damages.
Keywords: Dynamic Enforcement; Environmental Regulation; Pollution Abatement; Compliance Costs; EPA
JEL Codes: C57; Q53; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dynamic enforcement approach used by the EPA (Q58) | plant behavior regarding investment in pollution abatement (Q52) |
| eliminating dynamic enforcement (K40) | raise pollution damages (Q53) |
| eliminating dynamic enforcement (K40) | raise fines with constant pollution damages (Q53) |
| plants' investment decisions (G31) | regulatory status (regular violator or HPV) (L98) |
| regulatory status (regular violator or HPV) (L98) | expected future fines (G33) |
| regulatory status (regular violator or HPV) (L98) | compliance costs (Q52) |
| dynamic enforcement (K40) | incentives for plants to invest in pollution abatement technologies (Q52) |
| investment in pollution abatement technologies (Q52) | reducing future regulatory costs (G18) |
| investment in pollution abatement technologies (Q52) | reducing pollution damages (Q53) |