The Harrington Paradox Squared

Jessica Coria and Xiao-Bing Zhang

No 608, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Harrington (1988) shows that state-dependent enforcement based on past compliance records provides an explanation to the seemingly contradictory observation that firms' compliance with environmental regulations is high despite the fact that inspections occur infrequently and fines are rare and small. This result has been labeled in the literature as the "Harrington paradox". In this paper we propose an improved transition structure for the audit framework where targeting is based not only on firms' past compliance record but also on adoption of environmentally superior technologies. We show that this transition structure would not only foster the adoption of new technology but also increase deterrence by changing the composition of firms in the industry toward an increased fraction of cleaner firms that pollute and violate less.

Keywords: imperfect compliance; state-dependent targeted enforcement; technology adoption; emission standards (search for similar items in EconPapers)
JEL-codes: K31 K42 L51 Q55 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-01
New Economics Papers: this item is included in nep-acc, nep-env, nep-law and nep-res
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