Analysis of Firm Compliance with Multiple Environmental Regulations

When a firm is regulated under multiple environmental programs, its compliance behavior under these programs can be complementary or substituting—regulations of one program either increase or decrease firm compliance with other programs. This paper examines the existence and the nature of such cross program effects. A panel data model with panel corrected standard error (PCSE) is estimated using data on facilities regulated under both the air program (Clean Air Act, CAA) and the hazardous waste program (Reservation and Conservation Recovery Act, RCRA). Results show evidence of negative cross program effects of RCRA regulations on facility compliance with CAA. Increases in RCRA inspections and RCRA penalties as well as the threat of an RCRA inspection result in facilities complying less with CAA regulations. Furthermore, facilities that are regulated under other programs such as Toxic Release Inventory (TRI) and Clean Water Act (CWA) show less compliance than other facilities. Positive withinprogram effects are found, with the threat of a CAA inspection and actual CAA penalty imposing positive effects on CAA compliance. In addition, unemployment rates are negatively related to compliance while population density is positively related to compliance. SHSU ECONOMICS WORKING PAPER 1 Analysis of Firm Compliance with Multiple Environmental regulations Lirong Liu Abstract When a firm is regulated under multiple environmental programs, its compliance behavior under these programs can be complementary or substituting—regulations of one program either increase or decrease firm compliance with other programs. This paper examines the existence and the nature of such cross program effects. A panel data model with panel corrected standard error (PCSE) is estimated using data on facilities regulated under both the air program (Clean Air Act, CAA) and the hazardous waste program (Reservation and Conservation Recovery Act, RCRA). Results show evidence of negative cross program effects of RCRA regulations on facility compliance with CAA. Increases in RCRA inspections and RCRA penalties as well as the threat of an RCRA inspection result in facilities complying less with CAA regulations. Furthermore, facilities that are regulated under other programs such as Toxic Release Inventory (TRI) and Clean Water Act (CWA) show less compliance than other facilities. Positive withinprogram effects are found, with the threat of a CAA inspection and actual CAA penalty imposing positive effects on CAA compliance. In addition, unemployment rates are negatively related to compliance while population density is positively related to compliance.When a firm is regulated under multiple environmental programs, its compliance behavior under these programs can be complementary or substituting—regulations of one program either increase or decrease firm compliance with other programs. This paper examines the existence and the nature of such cross program effects. A panel data model with panel corrected standard error (PCSE) is estimated using data on facilities regulated under both the air program (Clean Air Act, CAA) and the hazardous waste program (Reservation and Conservation Recovery Act, RCRA). Results show evidence of negative cross program effects of RCRA regulations on facility compliance with CAA. Increases in RCRA inspections and RCRA penalties as well as the threat of an RCRA inspection result in facilities complying less with CAA regulations. Furthermore, facilities that are regulated under other programs such as Toxic Release Inventory (TRI) and Clean Water Act (CWA) show less compliance than other facilities. Positive withinprogram effects are found, with the threat of a CAA inspection and actual CAA penalty imposing positive effects on CAA compliance. In addition, unemployment rates are negatively related to compliance while population density is positively related to compliance.