Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards

Abstract

The EPA water pollution regulations-the focus of this study represent an interesting departure from past patterns of regulatory failure. First, the nature of the regulations-discharge limits-relates directly to the policy objective of controlling pollution, and there is no potential for offsetting behavioral responses. If the pollution standards are binding and enforced, they should improve water quality. Second, the enforcement effort is so extensive that enforcement should affect firms' compliance. In the pulp and paper industry, which we will analyze, the EPA averages roughly one inspection annually per major pollution source. In addition, firms are required to file monthly discharge monitoring reports, providing one of the most thorough monitoring capabilities of any health, safety, or environmental agency. Prior to the 1987 revisions of the Clean Water Act, one potential weak link was that EPA officials could not directly assess penalties for noncompliance. They could, however, seek the imposition of substantial penalties through court action. In the subsequent sections, we describe the nature of the EPA enforcement of water pollution regulations in the pulp and paper industry and the original data base we created for this study. Using information from EPA and industry sources, we constructed a longitudinal data base by firm, permitting a detailed evaluation of the effects of EPA inspections and their associated enforcement actions on the behavior of pulp and paper plants. As the empirical results will indicate, we find diverse evidence of significant EPA effects on the polluting and reporting activities of firms in the pulp and paper industry.