Water pollution is a serious public health risk. It is estimated that each year between 7 and 30 million people in the United States are affected by gastrointestinal illnesses from consumption of contaminated drinking water (Gelt, 1998). Also excessive nitrate concentrations in water supplies are the cause of "blue-baby" syndrome and can cause stillbirth in both humans and livestock. (1) Thus, water quality is an issue of state as well as federal attention and involvement. The Safe Drinking Water Act (SDWA), passed in 1974, authorized the U.S. Environmental Protection Agency (EPA) to set standards for drinking water quality. These standards, known as MCL, are maximum permissible levels of naturally occurring and human-made contaminants that can be present in drinking water without being harmful to health (Safe Drinking Water Act, U.S. Environmental Protection Agency, 1974). (2) The EPA defines a public water system (PWS) as "[a] system for the provision to the public of water for human consumption through pipes or other constructed conveyances, if such system has at least fifteen service connections or regularly serves at least twenty-five individuals" (United States Environmental Protection Agency, 2005). In Arizona, more than 5 million people receive drinking water from a regulated PWS (Arizona Department of Environmental Quality, 2004a). The remaining residents, amounting to about 10% of the state's entire population, get their supply of drinking water from private wells.
There is growing concern about the operations of PWS responsible for providing safe drinking water to people. Drinking water can get contaminated through perforation of chemicals and bacteria in the soil or as a result of exposure to pollutants in the air. Regardless of the manner of pollution, if consumed, contaminated water can be perilous to human health. In Arizona, the Arizona Department of Environmental Quality (ADEQ) monitors water systems in accordance with the provisions of the SDWA of 1974 and amendments made to the act in 1986 and 1996. It is the state agency responsible for ensuring that the level of contaminants present in the water is lower than the maximum permissible limits specified by the EPA. (3) However, the mere presence of laws and regulations does not necessarily guarantee compliance. An effective monitoring and enforcement strategy is essential to ensure the success of any regulatory mechanism. Hence, there arises the need for a monitoring mechanism by ADEQ that is preemptive, effective, and ensures the delivery of safe drinking water. For ADEQ to be able to accomplish these objectives, it would require a clear identification of PWS that are more likely to violate MCL regulations. Having this knowledge will enable ADEQ to monitor identified PWS at regular intervals in a timely fashion. It will also allow ADEQ to devote its limited resources to the inspection of those systems that have a higher probability of violating MCL regulations instead of randomly inspecting each of the hundreds of water systems operating in the state.
Whereas a large number of empirical studies have been devoted to analyzing determinants of environmental compliance (EC) by firms, less attention has been paid to EC by PWS. In this article, using data on MCL compliance of 971 PWS in Arizona, we identify the PWS and their associated characteristics that are more likely to violate MCL regulation. Our dependent variable of interest is the occurrence of an MCL violation by a PWS. Since this variable is binary (dichotomous) in nature, we estimate a probit model that allows the estimation of probability of MCL violation by an individual PWS.
The remainder of the article is organized as follows. Section II describes the monitoring mechanisms of the ADEQ. Section III briefly discusses relevant previous studies addressing the determinants of EC. Section IV provides a description of the data used and the empirical methodology. …