Supplementing review strategies with penalties in environmental enforcement

A framework for more effective and efficient enforcement of environmental regulations is proposed. An operator´s comply-violate decision is analysed in the context of the operator´s continuing relationship with an environmental agency, permitting an effective enforcement policy to be developed using the theory of repeated games. More specifically, enforcement conflicts between an operator and an agency are modelled using a noncooperative game called the enforcement dilemma that clarifies the causes of enforcement inefficiency. Then a systematic long-term enforcement policy, the review strategy, is introduced and shown to effect substantial improvements in enforcement efficiency. However, as some numerical examples illustrate, the review strategy alone cannot always give the operator the incentive to comply fully, because of exogenous uncertainty in monitoring procedures. A supplementary penalty, which may be quite small, is then introduced into the enforcement framework to strengthen the review strategy´s ability to deter violation. In combination with a suitable penalty system, the review strategy can be an effective means for an agency to enforce environmental regulations despite limited resources