Inspections, warnings, and compliance: the case of petroleum storage regulation

This paper examines the use of inspections and warnings to enforce environmental regulations. An empirical model of petroleum storage inventory reconciliation regulations is developed based on a state-dependent penalty system. I estimate a two-stage probit model on a dataset of inspections and warnings at petroleum storage sites in the province of Manitoba, Canada between 1983 and 1998. The results suggest that, even in the absence of frequent prosecutions, inspections deter future violations but that this effect is small.