Abstract
In the environmental enforcement literature, leveraged enforcement is an important theoretical model in which firms with current violations are targeted with intensive inspections and sanctions in the future. This paper examines the effects of leveraged enforcement on facility compliance and the differential deterrence effects of enforcement. We focus on the Environmental Protection Agency’s High Priority Violation (HPV) Policy, which represents leveraged enforcement in the regulations of air pollution in the USA. We estimate dynamic panel data models using 8755 major manufacturing facilities in the USA from 2001 to 2010. Our results suggest that being classified as an HPV facility can have significant and positive effects on compliance. We also find general deterrence effects such that a given facility’s compliance rate rises with fines on HPV facilities within the same state. However, the deterrence effects of enforcement differ by HPV status. HPV facilities on average are less responsive to additional enforcement on itself and other facilities.
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