Historical determinants of supplemental environmental projects included in the financial settlement of a US EPA case using <i>Tobit</i> estimation

Abstract

This finance paper revisits an earlier environmental finance research paper by Galose and Essayyad (2014) focused on drawing lessons from US history regarding what factors determine whether the financial settlement of a typical US Environmental Protection Agency (EPA) case includes a supplemental environmental project (SEP). SEPs provide benefits to the community affected by the alleged violation of environmental laws and the regulated entity. Galose and Essayyad (2014) employs probit models in its estimations of what variables determine whether an EPA settlement includes a SEP, with the dependent variable whether a SEP is included in the financial settlement. Unlike the previous research, this paper employs Tobit models and uses the same sample to estimate the amount spent on SEPs included in the financial settlement of an EPA case. The value added of the Tobit models is that they provide a superior measure of the benefits of SEPs by estimating the monetary amount spent on SEPs while simultaneously controlling for whether the settlement includes a SEP. The empirical results of the Tobit models substantiate those of the probit models.