The effect of EPA enforcement funding on private-sector pollution-control investment

The paper estimates the effects of the US Environmental Protection Agency (EPA) enforcement budget upon the demand for pollution-control equipment in the private sector. There are two possible effects. A direct effect occurs when the enforcement budget is used for inspections that result in enforced compliance requiring additional pollution control equipment. A second effect is anticipatory, and arises from the private sector's objective of minimizing expected costs due to fines imposed by the EPA for infractions of pollution-control requirements. This component of demand depends, in part, on the EPA enforcement budget. We find that increases in the EPA budget increase the demand for pollution-abatement equipment. This in turn implies that increases in the EPA enforcement budget have been effective in mitigating pollution.