An Experimental Study on Discretionary Environmental Enforcement

Enforcement of laws and enforcing institutions are the most crucial elements for the success of any regulatory policy design and should be taken into consideration when formulating policies for promoting social welfare. It is thus important, in designing environmental governance, to adopt institutional schemes capable of implementing effective environmental policy measures. In the last decade, the enforcement toolbox of US environmental regulators and institutions has been harshly criticized for giving too much discretion to the Environmental Protection Agency (EPA) and the Department of Justice (DOJ). Nowadays, the US EPA is pushing enforcement activities on all fronts but especially on criminal actions. Such a trend has been criticized as it has been argued that the fear of being indicted may, in the long run, undermine environmental compliance worsening both the relations between EPA and firms and environmental conditions.8 Moreover, from a theoretical perspective, Germani and Scaramozzino (2007) have recently shown how also the presence of the DOJ does not appear to affect the level of compliance by firms. Building on this theoretical model set up, we empirically tested, by means of a laboratory experiment, the role of the DOJ in deterring firms from polluting