Strategic Behaviors toward Environmental Regulation: A Case of Trucking Industry

Article excerpt

I. INTRODUCTION

Since Becker (1968) suggested that the cost of committing a crime would increase--and thus the crime rate would decrease--if probability or severity of punishment were increased, a large body of literature has been dedicated to study the enforcement and compliance of an environmental policy. For example, Innes (1996) described a theoretical model, with implication for regulating automobile pollution using second-best tax on mileage when perfect information was not available on vehicle emissions; Harrington (1988) developed a game-theoretic model to describe situations when firms would choose to comply even if enforcement effort was low. Helland and Matsuno (2003) examined the impact of compliance costs on a firm's economic profit, and Rodriguez-Ibeas (2003) described a model of implementing an optimal regulatory policy when the firms could adopt different range of polluting technologies with different degree of honesty.

Researchers have also attempted to empirically examine the relationship between compliance and enforcement. For example, Gray and Deily (1996) studied compliance of steel plants in response to air pollution regulation, Magat and Viscusi (1990) studied the compliance of paper mill plants, and Stafford (2002) studied firms' compliance with hazardous waste regulations.

Given the high information costs of determining the optimal level of penalty for noncompliance and high enforcement costs, it is not surprising that full compliance of environmental regulations is not the norm (see Russell, 1990; U.S. Government Accountability Office, 1980, 1983). Not coincidentally, some self-regulating policy tools such as voluntary environmental agreements have received increasing attention from researchers (e.g., Manzini and Mariotti, 2003; Maxwell, Lyon, and Hackett, 2000; Segerson and Miceli, 1998). Heyes (2000) provided a good comprehensive survey of both empirical and theoretical literature on enforcement and compliance of environmental regulations.

The existing literature may differ much in their discussion of environmental regulation; however, all of them have similar assumption that regulatees are economic agents who behave strategically to comply with environmental regulations. As previously mentioned, these strategic behaviors at the receiving end of environmental regulation may not imply full compliance in reality. Consequently, it would be advisable to account for potential impacts of regulatees' strategic behaviors when computing cost-benefit analysis of an environmental regulation. In May 2002, the trucking industry filed a petition to request the U.S. Environmental Protection Agency (EPA) to reconsider its decision to accelerate the implementation of 2004 diesel engine emissions standards by 15 mo to October 2002; the trucking industry contended that EPA's cost-benefit analysis of the acceleration did not fully account for the strategic behaviors the trucking industry might have adopted to not comply.

In this article, we begin with a brief description of events leading to the consent decrees EPA reached with the major diesel engine manufacturers to advance the implementation of the 2004 diesel engine emissions standards by 15 mo to October 2002. We then present the empirical models we used to analyze one of the trucking industry allegations that truck operators pre-bought new heavy-duty trucks equipped with noncomplying diesel engines and, in doing so, undermined the effectiveness of EPA's pull-ahead of 2004 emissions standards. Last, we discuss any possible implications for policymakers and researchers.

II. BACKGROUND

Trucks have been critically important in sustaining America's economy. According to the U.S. Department of Transportation, the value of freight carried by trucks accounts for 90% of the value of U.S. freight every year (U.S. Department of Transportation, 1998). Oftentimes, trucks carrying this freight are powered by diesel engines primarily because diesel engines are considered more energy efficient, more durable, and more reliable than their gasoline-powered counterparts. …