Shifting the Burden:Regulatory Responses to Pollution Control

Abstract

In thispaperI addresssuggestionsmadeby some researchersthatenvironmental regulators respond to rms' voluntary pollutioncontrol eorts through more favorable enforcement conditions.From a theoretical perspective,I show thata rm'senvironmentalinvestment behavior doesindeed cause a budget-constrained reg-ulator to divert itsenforcement eortstoward other rms. Thisplacesrmsin a prisonersdilemma whereby each hasan incentiveto impose increased monitoring costson the other. In addition,I present some empirical evidence that conrmsthe model's pri-mary implications.I nd thata rm can in factinuence its(anditscompetitor's)current-yearshareofenvironmental enforcementactivity by generating less(unregulated)pollution perunitoutputin previousyears.