Can Facilities Police Themselves? Evidence on the Effectiveness of Environmental Auditing (original) (raw)
Related papers
Journal of Regulatory Economics, 2011
Using a unique facility-level dataset from Michigan, we examine the effect of environmental auditing on manufacturing facilities' long-term compliance with U.S. hazardous waste regulations. We also investigate the factors that affect facilities' decisions to conduct environmental audits and whether auditing in turn affects the probability of regulatory inspections. We account for the potential endogeneity of our audit measure and the censoring of our compliance measure using a censored trivariate probit, which we estimate using simulated maximum likelihood. We find that larger facilities and those subject to more stringent regulations are more likely to audit; facilities with poor compliance records are less likely to audit. However, we find no significant long-run impact of auditing on the probability of a regulatory inspection or compliance among these Michigan manufacturing facilities.
Environmental audits and signaling: The role of firm organizational structure
This study examines the extent of environmental management practiced by U.S. chemical manufacturing facilities, as measured by the number of environmental internal audits conducted by facilities annually. In particular, this study focuses on the effects of firm-level organizational structure on facility-level environmental management practices. For its theoretical analysis, the study employs the framework of signaling, including both signals sent to customers and signals sent to regulators. For its empirical analysis, the study exploits unique data gathered by a survey distributed to all U.S. chemical manufacturing permitted to discharge wastewater as of 2001; the survey data provide information on audits conducted annually between the years 1999 and 2001. As one example, empirical results reveal a difference in auditing behavior based on whether facilities are owned by firms operating within a single state or multiple states.
Determinants of environmental audit frequency: The role of firm organizational structure
Journal of Environmental Management, 2013
This study empirically examines the extent of environmental management practiced by US chemical manufacturing facilities, as reflected in the number of environmental internal audits conducted annually. As its focus, this study analyzes the effects of firm-level organizational structure on facility-level environmental management practices. For this empirical analysis, the study exploits unique data from a survey distributed to all U.S. chemical manufacturing permitted to discharge wastewater in 2001; the data reflect internal audits conducted during the years 1999-2001. Empirical results reveal differences in auditing behavior based on whether facilities are owned by publicly held or non-publicly held firms, owned by U.S.-based or non-U.S.-based firms, and owned by larger or smaller firms.
We explore how limits to our insight on the underlying decision-making structure of regulated entities may affect the conclusions we draw about the likely impacts of environmental policies, with a focus on environmental auditing. We examine the conditions under which a multi-facility firm chooses to adopt a standardized auditing. Our firm-level empirical analysis confirms that a uniform auditing outcome is less likely among firms (1) with a more heterogeneous portfolio of facilities, and (2) that are less likely to make decision errors. We examine the implications of adding controls for firm decision-making structure in a facility-level empirical analysis of auditing's impact on compliance. Our results suggest that the estimated compliance impact of auditing varies depending on whether or not we include these controls. .
Big field, small potatoes: An empirical assessment of EPA's self-audit policy
SSRN Electronic Journal, 2004
Environmental self-auditing is said to deserve and require encouragement. Although firms can audit themselves more cheaply and effectively than regulators, they are deterred for fear that information they uncover will be used against them. To reduce this disincentive, EPA's "Audit Policy" lowers punitive fines when firms promptly disclose and correct self-discovered violations. While some contend that the Audit Policy is inadequate, EPA touts its success based on the policy's track record. Our examination of that track record leads us to question EPA's claim. Comparing the violations in these cases with those detected by standard EPA enforcement suggests that the typical self-audited violation is relatively minor. Cases arising under the Policy are more likely to concern reporting violations and less likely to concern emissions. The relative insignificance of self-audited violations raises a number of policy questions, including whether the Audit Policy should be revised to play a larger role in enforcement.
Better regulatory compliance through environmental auditing: A reform whose time has passed
Journal of Policy Analysis and Management, 2007
However, under certain conditions, business access costs are higher than residential costs, so that a higher charge is justified on the basis of economic efficiency and equity. B m E R REGULATORY Despite all of the attention devoted to the relative merits of com-COMPLIANCE peting policy instruments for controlling pollution (effluent THROUGH charges, emission offsets, auction schemes, and so on), from a prac-ENVIRONMENTAL tical standpoint, enforcement remains the crucial issue regardless AUDITING: A REFORM of the regulatory regime adopted. Without compliance, even the WHOSE TIME HAS cleverest of control schemes will fail. Unfortunately, government PASSED compliance efforts typically fall into an unproductive mindset about criminal sanctions. Maintaining a "criminal enforcement Stephen H. Under presence" is thought to deter unlawful pollution just as it deters any other legally proscribed conduct. Given this mindset, the seriousness of enforcement is measured more by the magnitude of the sanction and the tone of the rhetoric, than by the likelihood of detection. Threats and disproportionate sanctions are accompanied by hostility and confrontational tactics, creating a climate of regulatory unreasonableness which undermines control objectives. This approach has been both costly and counterproductive.' Ironically, proposals to reform this system adhere to the same logic but merely restrict the scope of its application: Sure, there are criminals out there, the thinking goes, but there are good citizens too. Accordingly, enforcement efforts can be scaled down by giving the good citizens responsibility for their own compliance. Environmental auditing is one such proposal currently being considered by the federal government and promoted for reducing the costs of both enforcement and compliance.* Although reforms aimed at promoting compliance are badly needed, this reform, like the enforcement approach it builds upon, is premised on a fundamental misconception of the compliance decision. Potential polluters do not apply the same logic as turnpike drivers who come to an empty toll station. Conscience and the other internal constraints on individual behavior cannot be the principal values in a competitive firm's decision calculus. And while economic motivations may overlap with moral ones, they are seldom the same. Thus, reforms premised on notions of individual guilt and fear of potential criminal sanctions represent an unproductive investment of resources better devoted to raising the likelihood of detection.
Compliance and Enforcement: Air Pollution Regulation in the U.S. Steel Industry
Journal of Environmental Economics and Management, 1996
We use data on individual steel plants to study the relationship between regulators' enforcement of air pollution regulations and firms' compliance decisions. We find the expected interactions between the decisions: at the plant level, greater enforcement leads to greater compliance, while greater compliance leads to less enforcement. We also test whether differences in firms' characteristics affect either compliance or enforcement decisions at the plant level, holding plant characteristics constant, and find that they seem to matter more for enforcement than for compliance.
Does Self-Policing Help the Environment? EPA's Audit Policy and Hazardous Waste Compliance
2013
In 1995, the Environmental Protection Agency (EPA) issued a final policy, "Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations."' This policy, more commonly referred to as the Audit Policy, is designed to encourage greater compliance with environmental regulations by providing incentives for facilities to voluntarily disclose and correct violations of environmental regulations.2 More specifically, the Audit Policy eliminates or reduces civil penalties for violations that facilities disclose as the result of a documented self-audit procedure and correct within 60 days.3 Additionally, regulators may choose not to recommend criminal prosecution for these facilities.4 Repeated violations, violations that present a "serious or imminent harm" to human health and the environment, or violations that involve criminal activity are not covered by the policy. 5 Supporters of the Audit Policy argue that it is an "efficient an...
The Regulator's Role in Encouraging Self-policing: Evidence from the EPA's Audit Policy
2012
Explicitly designed "to encourage self-policing" to "promote [more] ethical and lawful conduct [in] the health care industry" "detail the steps taken to cure the violation and to prevent any recurrence" Designed to encourage environmental compliance auditing 5 US EPA's Audit Policy Objective and approach implement environmental auditing: "systematic, objective, and periodic" to encourage greater compliance with laws and regulations that protect human health and the environment encourage regulated entities to voluntarily discover, and disclose and correct violations of environmental requirements Incentive Mitigates 75% or 100% of gravity-based (punitive) penalty for regulatory violations facilities self-disclose Key conditions Self-disclosures must arise from: "systematic discovery of the violation through an environmental audit or the implementation of a compliance management system" Voluntary discloser must make assurances that it will "prevent recurrence of the violation"
2008
State-level statutes provide firms that engage in environmental self-audits, and that selfreport their environmental violations, with a variety of different regulatory rewards, including "immunity" from penalties and "privilege" for information contained in selfaudits. This paper studies a panel of State-level industries from 1989-2003, in order to determine the effects of the different statutes on toxic pollution and government inspections. We find that, by encouraging self-auditing, privilege and limited immunity protections tend to reduce pollution and government enforcement activity; however, more sweeping immunity protections, by reducing firms' pollution prevention incentives, raise toxic pollution and government inspection oversight.