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Burden of Inspection Costs and Effectiveness of Environmental Regulations

Keisaku Higashida

No 189, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Using a laboratory experimental approach, this study examines the effect of institutional changes in the responsibility for paying inspection costs for environmental regulations on the behavior of polluters and authorities. In particular, we compare two schemes: one is that authorities always bear the inspection cost and the other is that polluters bear the cost in a given situation. We find that polluters comply with regulations more frequently in the latter than the former scheme, while the inspection behavior of authorities does not change significantly. Moreover, the cost-bearing change in the scheme induces income redistribution between polluters and authorities (pollutees or society). In addition, we introduce uncertainty about the occurrence of environmental damage, and find that the frequency of inspection is greater in the latter than the former scheme. Because both inspection and compliance costs increase, total payoff may decrease by the partial shift of responsibility for inspection cost from authorities to polluters.

Keywords: Compliance; environmental regulation; inspection cost; laboratory experiment (search for similar items in EconPapers)
JEL-codes: K32 Q52 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-exp and nep-law
Date: 2019-03
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http://192.218.163.163/RePEc/pdf/kgdp189.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:189

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