When threats become credible: A natural experiment of environmental enforcement from Florida

Environmental regulators often use dynamic enforcement, which bases penalties and enforcement effort on plants' past compliance history, to improve compliance and decrease emissions when enforcement resources are limited. Using plant-level data from the Environmental Protection Agency (EPA), I examine an unexpected shift in the use of traditional enforcement by environmental regulators in Florida, showing that all of the state's plants decreased emissions and improved compliance following an increase in penalties for those with Priority Violations. The largest improvements were observed among plants with the highest expected costs of compliance, which is consistent with the theory of dynamic enforcement. These results are robust to the use of control plants from nearby southern states, as well as control plants selected via a matching algorithm. The paper's findings (1) provide quasi-experimental evidence on the effectiveness of traditional enforcement actions, and (2) suggest that dynamic incentives may matter for plant compliance decisions. (C) 2019 Published by Elsevier Inc.