Abstract
We consider a game between two polluting firms and an inspection agency, which can inspect ambient pollution levels before inspecting individual firms, but without committing itself to announced inspection probabilities. Without ambient inspections, we have a unique equilibrium. With ambient inspections, we obtain several equilibria, depending on the relative values of the environmental cost of noncompliance and the cost of inspecting firms. In the most relevant equilibrium, the higher the fine for noncompliance and the lower the environmental cost of noncompliance by the firms, the more likely that expected costs for the inspection agency will be lower with ambient inspections.
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