The Influence of Internal Monitoring on Compliance with Effluent Limits

Abstract

Using unique data on chemical manufacturing facilities regulated under the Clean Water Act (CWA), this paper analyzes the effect of one particular environmental management practice — internal monitoring — on regulated facilities’ compliance with wastewater discharge limits. To deepen our understanding of the role played by internal monitoring, we extend our analysis by exploring the interaction between internal monitoring and self-audits, which should share a similar purpose to internal monitoring by providing systematic information to regulated facilities on their pollution abatement efforts. Baseline empirical results robustly demonstrate that increases in the extent of internal monitoring significantly improve facilities’ environmental compliance. The extended empirical results offer moderate evidence that audits complement internal monitoring (and vice versa): as facilities audit more frequently, the productive effect of increased internal monitoring grows.