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Shaping Corporate Environmental Behavior and Performance: The Impact of Enforcement and Non-Enforcement Tools

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Our novel interdisciplinary research team will integrate the fields of economics, political science, law, and engineering management to determine the factors that shape corporate environmental behavior and performance (CEBP) at individual facilities in the industrial sector of chemical and allied products. Our overarching objective is to determine and isolate the effects of various government interventions: inspections, federal fines, federal injunctive relief and supplemental environmental projects (SEPs), and state fines. We will measure environmental behavior by the extent of treatment, auditing, and environmental management system (EMS). We will measure environmental performance by wastewater discharges and the compliance rate with effluent limits. As specific objectives, we will identify the differential effects of government interventions, effects of general deterrence and enforcement approach, interactions between government interventions and facility characteristics (especially EPA status of "major/minor" discharger), and the influences of community pressure and firm financial status. We will also test empirically a theory of specific deterrence.

Approach:
To achieve these objectives, the researchers will gather data on environmental performance and government interventions from EPA and state agency databases and environmental behavior from an original survey of all 512 "major" chemical facilities and a random sample of 500 "minor" facilities. Tehy will econometrically analyze these data to estimate the relationships between CEBP and government interventions, while controlling for general deterrence, enforcement approach, and community pressure, within a simultaneous equations system. To test a theory of specific deterrence, we will examine responses to hypothetical scenarios included in the survey of facilities.

Expected Results:
The researchers expect to establish the following key results: (1) statistically supportable links between certain government interventions and CEBP and statistically significant differences among the effects of individual government interventions; (2) the effects of government interventions depending significantly on facility characteristics; (3) the sources of specific deterrence as increases in future penalty likelihood and/or size relative to the initial penalty likelihood and size; and (4) the importance of EMS protocols and community pressure. These results will generate benefits for state regulators and chemical manufacturers by permitting both parties to reduce discharges more effectively. In particular, state regulators will better understand how to use monitoring and enforcement tools to induce less non-compliance and greater compliance. Manufacturers will better understand how to improve environmental performance at their facilities.

Supplemental Keywords:
water, discharge, survey, socio-economic, enforcement, monitoring, engineering, law, chemical and allied products (2-digit SIC code 28), Heckman two-stage estimation. , Economic, Social, & Behavioral Science Research Program, RFA, Scientific Discipline, Sustainable Industry/Business, Civil/Environmental Engineering, Corporate Performance, Economics & Decision Making, Economics and Business, Engineering, Environmental Engineering, Environmental Law, Social Science, decision-making, EMS, Laws, SEPs, air & water pollution regulations, compliance assistance, corporate compliance, corporate environmental behavior, decision making, deterrence, economic incentives, enforcement, enforcement impact, enforcement strategy, environmental behavior, environmental compliane determinants, environmental decision making, environmental management systems (EMS), environmental performance, environmental policy, government intervention, incentives, legal and policy choices, motivators, policy analysis, policy making, public policy, regulations, regulatory impact

Metadata

EPA/NSF ID:
R828828
Principal Investigators:
Earnhart, Dietrich H.
Haider-Markel, Donald
Ebihara, Tatsuji
Glicksman, Robert
Technical Liaison:
Research Organization:
Kansas, University of
Funding Agency/Program:
EPA/ORD/Corporate Performance
Grant Year:
2000
Project Period:
March 12, 2001 to March 11, 2004
Cost to Funding Agency:
$341,234
Project Status Reports:
For the year 2001
Objective:
The overall objective of this research project is to integrate the fields of economics, political science, law, and engineering management to determine the factors that shape corporate environmental behavior and performance (CEBP) at individual facilities in the industrial sector of chemical and allied products. Our primary objective is to determine and isolate the effects of various government interventions including: inspections, federal fines, federal injunctive relief, supplemental environmental projects (SEPs), and state fines. The researchers will measure environmental behavior by the extent of treatment, auditing, and the environmental management system (EMS). They will measure environmental performance by wastewater discharges and the compliance rate with effluent limits. Specific objectives are to identify the: (1) differential effects of government interventions (e.g., federal fines versus state fines) and the effects of general deterrence and enforcement approach; (2) interactions between government interventions and facility characteristics (especially U.S. Environmental Protection Agency (EPA) status of "major" or "minor" discharger); and (3) influences of community pressure and firm financial status. We also will empirically test a theory of specific deterrence.

Progress Summary:
To achieve these objectives, the researchers have gathered data on environmental performance and government interventions from EPA and state agency databases. We currently are in the process of gathering information on environmental behavior from an original survey of all 512 "major" chemical facilities, and a random sample of 1,000 "minor" facilities.

In particular, the researchers have: (1) obtained data on federal and state inspections, EPA administrative fines, federal judicial fines, and federal injunctive relief sanctions and SEPs; (2) obtained preliminary data on state penalties from two of the five selected states; (3) obtained and summarized data on monthly wastewater discharges and permitted effluent limits for biological oxygen demand (BOD) and total suspended solids (TSS); (4) designed and incorporated, into our survey, questions on environmental behavior, such as auditing frequency and scope; (5) obtained sector-specific data on various measures of general deterrence, such as inspection rates; (6) designed and incorporated, into our survey, questions to distinguish the overall enforcement approach; (7) designed and incorporated, into our survey, hypothetical scenarios designed to generate stated behavior data on responses to the imposition of penalties that vary in size and likelihood; (8) obtained, from public sources, data on some facility characteristics, such as the 4-digit Standard Industrial Classification (SIC) code and the National Pollutant Discharge Elimination System (NPDES) facility classification as a "major" or "minor" wastewater discharger; (9) designed and incorporated into our survey are questions on other facility characteristics, such as employment level and environmental full-time equivalent (FTE) staff; (10) designed and incorporated into our survey are questions on various EMS factors, such as conformance to standard compliance audit protocols; (11) obtained information on community characteristics using zip code-level Census data and county-level Commerce Department Regional Economic Information Service (REIS) data; and (12) designed and incorporated into our survey questions that probe managerial perspectives on community pressure and facilities' environmental standing in the local community.

Future Activities:
For the subsequent period of July 1, 2002 to May 15, 2003 we plan to: (1) finish implementation of the survey; (2) code, clean, and scrutinize the survey responses; (3) gather the remaining data on state penalties; (4) gather data on state water budgets and the number of manufacturing facilities per state; (5) gather data on ambient surface water quality; (6) gather and scrutinize financial data; (7) merge all data noted above, plus data on community characteristics, with currently merged data on discharges, effluent limits, inspections, and federal penalties; and (8) econometrically analyze these data to estimate the relationships between CEBP and government interventions, while controlling for general deterrence, enforcement approach, and community pressure within a simultaneous equations system.

Supplemental Keywords:
water, discharge, survey, socioeconomic, enforcement, monitoring, engineering, law, chemical products, allied products, SIC Code 28, Heckman two-stage estimation. , Economic, Social, & Behavioral Science Research Program, RFA, Scientific Discipline, Sustainable Industry/Business, Civil/Environmental Engineering, Corporate Performance, Economics & Decision Making, Economics and Business, Engineering, Environmental Engineering, Environmental Law, Social Science, decision-making, EMS, Laws, SEPs, air & water pollution regulations, compliance assistance, corporate compliance, corporate environmental behavior, decision making, deterrence, economic incentives, enforcement, enforcement impact, enforcement strategy, environmental behavior, environmental compliane determinants, environmental decision making, environmental management systems (EMS), environmental performance, environmental policy, government intervention, incentives, legal and policy choices, motivators, policy analysis, policy making, public policy, regulations, regulatory impact

For the year 2002

Objective:

The one overarching objective of this research project is to determine and isolate the effects of certain government interventions on corporate environmental behavior and performance (CEBP) at individual facilities in the chemical and allied products industrial sector. The study measures the following: (1) environmental behavior by the extent of treatment, auditing, and an environmental management system (EMS); and (2) environmental performance by the level of wastewater discharges and the compliance rate with effluent limits. From our overarching objective, we identified the following seven specific objectives: (1) identify the differential effects of government interventions on CEBP; (2) identify the effects of general deterrence and enforcement approaches on CEBP; (3) empirically test the theoretical understanding of specific deterrence; (4) identify the interactions between the effects of government interventions and facility characteristics, especially the status as a major or minor discharger; (5) explore the influence of EMS protocols on environmental performance; (6) explore the influence of community pressure on CEBP; and (7) explore the influence of financial status on CEBP.

Progress Summary:
Work status and progress according to each of these seven objectives are detailed below:
To achieve Objective 1, the researchers have completed the following tasks: (1) obtained data on federal enforcement actions, including formal actions (i.e., penalties) and informal actions (e.g., warning letters), which were not included in the original project description; (2) organized data on a variety of government interventions in order to generate various measures of specific deterrence (e.g., count of federal inspections in preceding 12-month period); (3) obtained data on state penalties from the five selected states (the data from South Carolina is exceptionally poor, so they will not be used); (4) performed a preliminary categorization of state penalty data by type (e.g., fine versus injunctive relief) where relevant; (5) obtained and organized data on compliance schedules, which represent a type of government intervention not included in the original project description; (6) scrutinized data on biodegradable oxygen demand (BOD) and total suspended solids (TSS) discharges and effluent limits; (7) obtained and organized data on monthly effluent limit exceedances across all permitted pollutants; (8) obtained and organized information on ambient surface water quality from the U.S. Environmental Protection Agency (EPA) Index of Watershed Indicators database; (9) obtained sample data on ambient surface water quality from the EPA’s Storage and Retrieval (STORET) and the Better Assessment Science Integrating Point and Nonpoint Sources (BASINS) databases, which were not included in the original project description; (10) wrote and completed a survey that includes questions on environmental behavior that address wastewater treatment process, authentication of the International Organization for Standardization (ISO) 14000, and auditing frequency and scope; (11) organized the survey responses; (12) reviewed the legal literature on the differential effects of government interventions on corporate environmental behavior and performance; (13) performed multivariate analysis on the presence of monthly discharge records for and the monthly imposition of BOD and TSS effluent limits on the sampled major chemical facilities; and (14) attended the Berkeley Workshop on Corporate Environmental Performance and the Effectiveness of Government Interventions in June, 2003 (Don Haider-Markel attended).

To achieve Objective 2, the researchers have completed the following tasks: (1) obtained sector-specific data on additional measures of general deterrence based on formal and informal federal enforcement actions; (2) obtained information on water budgets for state environmental agencies and the number of manufacturing facilities per state; (3) completed a survey that includes questions to distinguish the overall enforcement approach: cooperative versus coercive; and (4) organized the survey responses.

To achieve Objective 3, the researchers have completed the following tasks: (1) completed a survey that includes hypothetical scenarios designed to generate stated behavior data based on responses to the imposition of penalties that vary in size and likelihood; and (2) organized the responses to these hypothetical scenarios.

To achieve Objective 4, the researchers completed a survey that includes questions on the following facility characteristics: (1) number of years in operation, (2) employment level, (3) firm ownership structure, (4) annual total product output, (5) facility environmental full-time equivalent (FTE) staff and degree of professional training, (6) corporate environmental FTE staff, and (7) total budget for external consulting staff. We also organized the survey responses.

To achieve Objective 5, the researchers completed a survey that includes questions on the following EMS factors: (1) communication of management's environmental compliance targets to plant staff; (2) level of employee participation in identifying and correcting potential noncompliance; (3) conformance to standard compliance audit protocols; and (4) degree of access to internal and/or external compliance assistance resources. We also organized the survey responses.

To achieve Objective 6, we have completed the following tasks: (1) obtained state-level information on environmentally-related policy and political outcomes (e.g., League of Conservation Voters' rating of U.S. Congressional delegation, election results from state Secretaries of State); (2) obtained additional information on community characteristics using locale-level (e.g., village) Census data and county-level Commerce Department Regional Economic Information Service (REIS) data; (3) completed a survey that includes questions to probe managerial perspectives on community pressure, and facilities' environmental standing in the local community; (4) organized the survey responses; and (5) reviewed the literature on community pressure and the use of community characteristics as proxies.

To achieve Objective 7, we have completed the following tasks: (1) identified the ultimate parent company for almost every major facility in the Permit Compliance System (PCS) database using the Toxic Release Inventory (TRI) database and three business-related database (this task was exceptionally and unexpectedly time-consuming); (2) identified the basic ownership structure—privately-held versus publicly-held—for almost every major facility in the PCS database; (3) obtained data on financial status for publicly-held firms from Compustat/Research Insight; and (4) organized data on financial status for use in multivariate analysis.

Difficulties. First, in this reporting period, we encountered a few difficulties with the implementation of the survey, all but one of which were described in our 2001 Progress Report. The additional difficulty relates to the poorly recorded contact information on facilities provided within the PCS database and available from the EPA in general. Over 56 percent of the contacts provided by the EPA were wrong or misleading, with either wrong phone numbers, disconnected phone numbers, or the wrong individual listed as the contact person for the National Pollutant Discharge Elimination Service (NPDES) permit. This difficulty greatly impeded progress in contacting potential survey respondents. To proceed, we looked for additional sources of contact information: (1) web-based searches under the facility and company name; (2) EPA regional offices; and (3) state environmental protection offices. These efforts yielded considerably more reliable contact information for about 30 percent of the original 1,612 facilities we attempted to survey.

Second, the information on state penalties gathered by the State of South Carolina was sufficiently poor for us to reject its further use.

Third, the TRI database was used to establish the ultimate parent company for each major facility. Unfortunately, no trustworthy link connects the TRI database with the PCS database. Therefore, much effort was expended connecting these two EPA databases and cross-referencing the connections. Moreover, the parent company information provided within the TRI database is incomplete and inconsistent: the provided company name may or may not identify the ultimate parent company (i.e., identified parent company may be owned by yet another company). Consequently, we needed to reference three other business-related databases to identify the ultimate parent company.

Results. As of yet, we have only preliminary results relating to the implementation of our survey. Of the 1,612 facilities we attempted to survey, 736 refused to participate; 214 indicated they no longer had NPDES permits (and were therefore excluded from the study); 38 said the facility was no longer in operation (these facilities also were excluded from the study); 23 were excluded from the study after we contacted the EPA concerning the permit number and the EPA said these facilities were closed or no longer discharging; 15 indicated they had already completed the survey, even though we had no record of the facility responding to the survey; and 319 facilities were excluded because we were unable to directly contact the facility that applied for the EPA-listed NPDES permit. Respondents from the remaining 267 facilities completed 90 percent or more of the survey. After excluding the facilities that did not fit the criteria, the population surveyed was 1,320 facilities. Based on this group of eligible respondents, including those who refused to participate, the response rate for the survey was 20 percent. Based on refusals to complete surveys, the cooperation rate was 26.6 percent. A comparison of the original sample of 1,612 potentially eligible facilities to those facilities that actually completed the survey reveals that there is no systematic state or regional bias in participation. There was some difference in the participation of major versus minor facilities. In the original sample 69 percent of facilities were minor facilities, and 31 percent were major facilities. In the group of survey respondents, major facilities were slightly over-represented at 39 percent.

Future Activities:

For the period of July 1, 2002, to May 15, 2003, the investigators plan to complete the following tasks: (1) complete the process of coding, cleaning, and scrutinizing the survey responses; (2) gather additional data on ambient surface water quality from the STORET and BASINS databases; (3) scrutinize financial data; (4) empirically test the theoretical understanding of specific deterrence; (5) perform multivariate analysis of government agency decisions to inspect and/or penalize major chemical manufacturing facilities; (6) identify the most useful measures of environmental behavior from the survey responses for the multivariate analysis of both behavior and performance; (7) perform multivariate analysis of environmental performance using the following data sets: all chemical facilities, chemical facilities in states with gathered data on state penalties, all publicly-held chemical facilities, and all survey respondents; (8) replicate analyses above after incorporating environmental behavior; (9) complete all remaining tasks based on the results of the multivariate analysis described above; and (10) disseminate the results.

Supplemental Keywords:
water, discharge, survey, socio-economic, enforcement, monitoring, engineering, law, chemical and allied products (2-digit SIC code 28), Heckman two-stage estimation, corporate, environmental behavior, performance. , Economic, Social, & Behavioral Science Research Program, RFA, Scientific Discipline, Sustainable Industry/Business, Civil/Environmental Engineering, Corporate Performance, Economics & Decision Making, Economics and Business, Engineering, Environmental Engineering, Environmental Law, Social Science, decision-making, EMS, Laws, SEPs, air & water pollution regulations, compliance assistance, corporate compliance, corporate environmental behavior, decision making, deterrence, economic incentives, enforcement, enforcement impact, enforcement strategy, environmental behavior, environmental compliane determinants, environmental decision making, environmental management systems (EMS), environmental performance, environmental policy, government intervention, incentives, legal and policy choices, motivators, policy analysis, policy making, public policy, regulations, regulatory impact

Future Activities:

For the period of July 1, 2002, to May 15, 2003, the investigators plan to complete the following tasks: (1) complete the process of coding, cleaning, and scrutinizing the survey responses; (2) gather additional data on ambient surface water quality from the STORET and BASINS databases; (3) scrutinize financial data; (4) empirically test the theoretical understanding of specific deterrence; (5) perform multivariate analysis of government agency decisions to inspect and/or penalize major chemical manufacturing facilities; (6) identify the most useful measures of environmental behavior from the survey responses for the multivariate analysis of both behavior and performance; (7) perform multivariate analysis of environmental performance using the following data sets: all chemical facilities, chemical facilities in states with gathered data on state penalties, all publicly-held chemical facilities, and all survey respondents; (8) replicate analyses above after incorporating environmental behavior; (9) complete all remaining tasks based on the results of the multivariate analysis described above; and (10) disseminate the results.

Project Reports:

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