In deciding whether to inspect specific plants, regulators
are sensitive to local environmental damages and, all things being
equal, allocate more inspection efforts to plants whose emissions
are likely to generate more damage. In other words, although national
standards are uniform, local conditions affect the local monitoring
and enforcement of national standards and effectively determine
the "price of pollution" in each area.
Economists have criticized regulations that impose uniform environmental standards on plants that may face different marginal abatement costs and different marginal damage functions. Such critics ignore the significant difference in implementation of standards across plants, which gives rise to nonuniform standards.
Dion, Lanoie, and Laplante analyze what determines the regulators' monitoring activities and what factors explain their decision on whether to inspect a plant's environmental performance.
They find that in deciding whether to inspect specific plants, regulators are sensitive to local environmental damages and, all things being equal, allocate more inspection efforts to plants whose emissions are likely to generate more damage.
Although national standards (as defined by laws and regulations) are uniform, their implementation is a function of local conditions. Local monitoring and enforcement of national standards effectively determines the "price of pollution" in each area. Which means that, all things being equal, local enforcers could redirect resources in a way that approximates optimal behavior.
Ignoring the tradeoffs taking place locally could undermine and render ineffective regulatory and policy reform that is strictly national.
This finding supports the finding of Wang and Wheeler (Pricing Industrial Pollution in China, Policy Research Working Paper 1644, World Bank) that local enforcement of uniform national standards determines the effective "price of pollution" in each area. It supports the public interest theory of regulation, which views the regulator as an agent whose objective is to maximize social welfare.
On the other hand, Dion, Lanoie, and Laplante also show that the regulator's behavior is also a function of variables that may not be directly related to abatement cost and damages. In particular, they show that variables related to conditions in the local labor market affect the regulator's choice of monitoring strategy. This finding lends support to the economic theory of regulation, which views regulators as agents whose behavior can best be explained by assuming that they seek to maximize their political support.
This paper — a product of the Environment, Infrastructure,
and Agriculture Division, Policy Research Department — is part
of the department's ongoing work on industrial pollution. Copies
of the paper are available free from the World Bank, 1818 H Street
NW, Washington, DC 20433. Please contact Beno"t Laplante,
room N10-015, telephone 202-458-5878, fax 202-522-3230, Internet
address blaplante@worldbank.org. (20 pages)
The full report is available in PDF format.