News Flash: Enforcement Works

by Stuart Shapiro

My area of research (and occasional blogging) is the writing of regulations.  But after regulations get written, they have to be enforced.  This means agencies like EPA and OSHA sending out inspectors and looking for violations of regulations and punishing violators.  Regblog describes a recent paper that finds (surprise, surprise) that more enforcement means better compliance.

Economists Wayne Gray and Jay Shimshack investigate the impact of enforcement in their recent paper, “The Effectiveness of Environmental Monitoring and Enforcement: A Review of the Empirical Evidence.”

They examine the available research to assess whether enforcement actions produce deterrence, leading to improvements in a company’s behavior. They specifically considered whether companies would choose to comply when the money saved by polluting is lower than the expected cost of enforcement, that is, the perceived risk of being caught and punished multiplied by the magnitude of the punishment.

Gray and Shimshack found that traditional enforcement does significantly increase compliance. They stated that, “this suggests that significant increases in environmental quality might be achieved through small incremental investments in environmental monitoring and enforcement.”

In other words, the policing of corporate criminals is just like the policing of other criminals. More boots on the ground means more compliance with the law. Of course boots (and the people that wear them) cost money. Cutting the budgets of EPA and OSHA (and SEC and FDA) means more breaking of the law. If you cast yourself as in favor of “law and order” then you should be in favor of higher enforcement budgets for regulatory agencies.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.