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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 2, Issue 1 (Jan 2002)

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Volume 2 (2002)

Volume 1 (2001)

Ambient environmental inspections and commitment towards enforcement policies: substitutes or complements?

Laurent Franckx
Published Online: 2002-01-23 | DOI: https://doi.org/10.2202/1538-0653.1026

Abstract

We consider an inspection game between polluting firms and an environmental enforcement agency that can inspect ambient pollution before inspecting individual firms. We assume that the enforcement agency's objectives do not perfectly correspond with the objectives of the legislative body who determines the standards for compliance and the fines for non-compliance, and that the enforcement agency can determine its inspection policy independently. However, contrary to Franckx (2002), we assume that the agency can commit to inspection probabilities. We show that this commitment power radically changes the value of ambient inspections.

If the legislator imposes an infinite fine, commitment power and ambient inspections are perfect substitutes: both allow the agency to obtain perfect compliance without actually inspecting firms. However, with upper limits to the fine, ambient inspections and commitment power are complements. Indeed, if the agency does not conduct ambient inspections, it can only obtain perfect compliance by announcing high probabilities of firm inspections. With stringent upper limits to the fine, this implies high inspection costs. However, if the agency conducts ambient inspections, it can announce probabilities of firm inspections that are conditional on behavior that will not be observed in equilibrium, and all firms will comply.

Keywords: Ambient inspections; regulatory commitment; environmental enforcement

About the article

Published Online: 2002-01-23


Citation Information: Topics in Economic Analysis & Policy, ISSN (Online) 1538-0653, DOI: https://doi.org/10.2202/1538-0653.1026.

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[1]
François Cochard, Julie Le Gallo, and Laurent Franckx
Bulletin of Economic Research, 2015, Volume 67, Number S1, Page S40

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