Do Nonprofits Encourage Environmental Compliance?

When states incompletely monitor or enforce, environmental nonprofits step in. We estimate the impact of these groups on industrial compliance with the Clean Water Act, as well as their effect on government monitoring and enforcement. We geographically link annual panel data on facility inspection rates, pollution violations, and enforcement actions with information about nearby nonprofit watershed groups. In addition to two-stage least squares estimation for endogenous efforts of nonprofits, governments, and firms, we implement a recent advance in nonlinear methods with improved fit for our fractional dependent variables. As the number of nonprofit groups increase, government decreases inspections and firms have fewer severe effluent violations. The nonprofits' oversight substitutes for government efforts by interacting directly with facilities rather than putting pressure on regulatory mechanisms. The interventions by these environmeVntal groups encourage compliance and, based on theory, improve efficiency.