An integrated strategy to reduce monitoring and enforcement costs

A policy of effective environmental protection, in the present political atmosphere, will require low-cost monitoring and enforcement (M&E) strategies that do not rely on draconian penalties. Infinite or even very high penalties for environmental violations are socially and politically unacceptable. Environmental violations are often classed as civil offenses, and the occurrence of a violation may be thought insufficient to establish intent. If penalties are upper-bounded and each firm is inspected randomly, compliance cannot be maintained with arbitrarily small inspection probabilities and, hence, small agency costs. In this paper we examine possibilities for reducing agency M&E costs, including the requirement for self-reports of effluents and the adjustment of the inspection probability to reflect a firm's compliance or reporting reputation.