Discretionary enforcement and strategic interactions between enforcement agencies and firms: a theoretical and laboratory investigation
This paper presents a game theoretic morphological analysis of the strategic interactions between environmental enforcement authorities and polluting firms. The models explore the role of discretion that such authorities enjoy, either in deciding how to pursue environmental violations (investigative and prosecutorial discretion) or in judging them (judicial discretion). The purpose is to identify both the optimal firms’ behaviour in terms of compliance, and the enforcement authorities’ optimal strategies in terms of enforcement actions to undertake. Consistent with the setting of the game theoretic models, the role of the enforcement agencies in deterring firms from polluting is, then, empirically tested by means of laboratory experiments. Laboratory evidence on compliance behaviour of firms when faced with enforcement conditions predicted by the theoretical models set up is discussed for the different experimental treatments performed. Overall, we suggest that making environmental enforcement less predictable for the firms, and thus creating a degree of uncertainty for the violators, can actually encourage deterrence and, thus, improve compliance. Thus, a partly unpredictable enforcement strategy may generate more compliance than an environmental policy that is known with certainty in advance.
KeywordsEnvironmental enforcement Discretion Game theory Experimental economics
JEL Classification017 004 001
The authors are grateful to Dennis Cory for having inspired this work and to Sam Fankhauser and Antonio Nicita for their valuable comments on a previous version of the paper, and seminar participants at the University of Rome “La Sapienza”, at the 10th Annual Global Conference on Environmental Taxation, Lisbon, at the 24th Annual Conference of the European Association of Law and Economics (EALE), Copenhagen, and at the 22nd Annual Conference of the European Association of Environmental and Resource Economists (EAERE), Zurich, for useful suggestions.
- Abbot, C. (2009). Enforcing Pollution control regulation—strengthening sanctions and improving deterrence. London: Hart.Google Scholar
- Ayres, I., & Braithwaite, J. (1992). Responsive regulation: Transcending the deregulation debate. Oxford: Oxford University Press.Google Scholar
- Babbit, C. J., Cory, D. C., & Kruchek, B. L. (2004). Discretion and the criminalization of environmental law. Duke Environmental Law and Policy Forum, 15, 1.Google Scholar
- Baker, T., Harel, A., & Kugler, T. (2004). The virtues of uncertainty in law: An experimental approach. Iowa Law Review, 89, 443–494.Google Scholar
- Billiet, C. M. (2012). Satellite images as evidence for environmental crime in Europe. A judges perspective. In R. Purdy & D. Leung (Eds.), Evidence from earth observation satellites. Emerging legal issues. Leiden: Brill.Google Scholar
- Clifford, R. (2007). Shining the spotlight on european union environmental compliance. Pace Environmental Law Review, 24 (1), http://digitalcommons.pace.edu/pelr/vol24/iss1/7.
- Coffee, J. C. (1991). Does unlawful mean criminal?: Reflections on the disappearing tort/crime distinction in american law. Boston University Law Review, 71, 193.Google Scholar
- Cohen, M. (1999). Monitoring and enforcement of environmental policy. In T. Tietenberg & H. Folmer (Eds.), International yearbook of environmental and resource economics 1999/2000 (Vol. III, pp. 44–106). Northampton, MA: Edward Elgar Publishers.Google Scholar
- Cohen, M. (2000). Empirical research on the deterrent effect of environmental monitoring and enforcement. Environmental Law Report, 30, 10245–10252.Google Scholar
- EPA (2016). Enforcement annual results numbers at a glance for fiscal year 2016. https://www.epa.gov/enforcement/enforcement-annual-results-numbers-glance-fiscal-year-2016.
- Esworthy, R. (2014). Federal pollution control laws: How are they enforced? Congressional Research Service (CSR) report, 7-5700. https://fas.org/sgp/crs/misc/RL34384.pdf.
- European Commission (2008). Directive 2008/99/EC on the protection of the environment through criminal law. http://ec.europa.eu/environment/legal/crime/index.htm.
- Faure, M. G., & Johnston, J. S. (2008). The law and economics of environmental federalism: Europe and the United States Compared. Faculty Scholarship Paper 202. http://scholarship.law.upenn.edu/faculty_scholarship/202.
- Firestone, J. (2003). Enforcement of pollution laws and regulations: An analysis of forum choice. Harvard Environmental Law Review, 27, 105–176.Google Scholar
- Franckx, L. (2001a). Ambient environmental inspections in repeated enforcement games, working paper series n. 2001-12, Katholieke Universiteit Leuven. http://feb.kuleuven.be/drc/Economics/misc/ete_workingpapers/ete-wp01-12.pdf.
- Franckx, L. (2001b). Ambient environmental monitoring, sequential firm inspections and time-decreasing benefits of inspection. Economic Bullettin, 17(1), 1–10.Google Scholar
- Gaynor, K. A., & Lippard, B. S. (2002). Environmental enforcement: Industry should not be complacent. Environmental Law Reporter, 32, 10488–10504.Google Scholar
- Glicksman, R., & Earnhardt, D. (2007). Depiction of the regulator-regulated entity relationship in the chemical industry: Deterrence-based v. cooperative enforcement. William and Mary Environmental Law and Policy Review, 31(3), 603–660.Google Scholar
- Green, S. P. (1997). Why it’s a crime to tear the tag off a mattress: Overcriminalization and the moral content of regulatory offenses. Emory Law Journal, 46, 1533–1615.Google Scholar
- Hampton, P. (2005). Reducing administrative burdens: Effective inspection and enforcement. Retrieved http://www.bis.gov.uk/files/file44593.pdf.
- Hertz, M. (2011). Structures of environmental criminal enforcement. Fordham Environmental Law Review, 7(3), 678–718.Google Scholar
- House of Commons (2005). Government response to the committee’s second report of session 2004-05 on corporate environmental crime. Available at: http://www.parliament.the-stationery-office.com.
- Kane, P. S. (1993). Why have you singled me out? The use of prosecutorial discretion for selective prosecution. Tulane Law Review, 67, 2293.Google Scholar
- Krämer, L. (2002). Thirty years of EC environmental law: Perspectives and prospectives. In Yearbook of European environmental law, (vol. 2, pp. 155–182). Oxford: Oxford University Press.Google Scholar
- Macrory, R. (2006). Regulatory justice: Making sanctions effective. Retrieved: http://www.bis.gov.uk/files/file44593.pdf.
- Michael, D. (1992). To make the punishment fit the crime: Essays in the theory of criminal justice. Boulder, CO: Westview.Google Scholar
- Mintz, J. A. (2012). Enforcement at the EPA: High stakes and hard choices (Revised ed.). Austin, TX: University of Texas Press.Google Scholar
- Morris, S. (2008). Purification. In S. N. Durlauf & L. E. Blume (Eds.), The new palgrave dictionary of economics (2nd ed.). Basingstoke: Palgrave Macmillan.Google Scholar
- Ogus, A. (2004). Enforcing regulation: Do we need the criminal law? In H. Sjogren & G. Skogh (Eds.), New Perspectives on Economic Crime. Cheltenham: Edward Elgar.Google Scholar
- Polinsky, A. M., & Shavell, S. (2006). The theory of public enforcement of law. Amstersdam: Elsevier.Google Scholar
- Roth, A. (1995). Bargaining experiments. In J. Kagel & A. Roth (Eds.), Handbook of experimental economics (pp. 253–348). Princeton, NJ: Princeton University Press.Google Scholar
- Rousseau, S. (2007). The impact of sanctions and inspections on firms’ environmental compliance decisions. Energy, transport and environment. Katholieke Universiteit Leuven, working paper series, n. 4.Google Scholar
- Senate, U. S. (2003). Criminal and civil enforcement of environmental laws: Do we have all the tools we need? Hearing. U.S. Governmental Printing, 107(97), 437–456.Google Scholar
- Stranlund, J. (2013). A brief review of the economics of enforcing environmental policies. In J. Shogren (Ed.), Encyclopedia of energy, natural resource, and environmental economics (vol. 2, pp. 150–155). Elsevier Science.Google Scholar
- Svatikova, K. (2011). Complementary use of administrative and criminal fines in enforcing environmental regulations. PhD thesis: Economic criteria for criminalization: Optimizing enforcement in case of environmental violations, Chapter 6.Google Scholar
- United Nations Environment Programme. (2006). Manual on compliance with and enforcement of multilateral environmental agreements. Nairobi: UNEP.Google Scholar
- U.S. EPA. Compliance and enforcement annual results, various years.Google Scholar
- Viscusi, W. K., & Zeckhauser, R. J. (1979). Optimal standards with incomplete enforcement. Public Policy, 27, 437–56.Google Scholar