Research


Analysis of Firm Compliance with Multiple Environmental Regulations (2013)

Lirong Liu
Economics Bulletin, Volume 33 No. 3, pp. 1695-1705

Abstract: When a firm is regulated by multiple environmental programs, the firm may manage its compliance with these programs systematically so that the regulation of one program can affect firm decisions regarding compliance with other programs. Faced with budget constraints on compliance expenditure, a firm is likely to reduce its compliance with one program when certain incentives to comply better with another program arises. Such incentives can include more frequent inspection or higher penalties under another program. This paper examines the existence of such negative spillover effects across programs. A fixed effects model is estimated using data on facilities regulated under CAA (Clean Air Act) and RCRA (Reservation and Conservation Recovery Act). Results confirm negative spillover effects. Increases in RCRA penalties as well increases in RCRA inspections on other facilities result in facilities complying less with CAA regulations. [More..]

Enforcement Leverage with Fixed Inspection Capacity (2013)

Lirong Liu, William Neilson
Strategic Behavior and the Environment, forthcoming

Abstract: We develop a targeting enforcement mechanism in the context of fixed inspection capacity due to budget constraint. A fixed number of firms are selected for inspection and those with the highest emissions are targeted with higher inspection probability. This structure induces dynamic rank-order tournaments among inspected firms. The differentiated inspection probabilities between targeted and untargeted firms induce leverage effects while the rank-order tournament induces competition effect. The combinations of leverage and competition effects give firms more incentive to abate and stay in compliance. We use numerical simulations to show that targeted firms should be inspected with high probability and that about 2/3 of inspections should be allocated to targeted firms. Furthermore, even suboptimal allocations of inspections and firms to the targeted and untargeted groups can outperform static enforcement schemes. [More..]

Information and Communications Technology (ICT) and Trade in Emerging Market Economies (2013)

Lirong Liu, Hiranya K. Nath
Emerging Markets Finance and Trade, forthcoming

Abstract: This paper examines the effects of information and communications technology (ICT) on international trade in emerging markets. Using panel data for 40 emerging market economies (EME) for a period from 1995 to 2010, we estimate fixed effect models of exports and imports on ICT and other control variables. Our ICT variables include the growth of investment in telecom services, international Internet bandwidth, Internet subscriptions per 100 people, and the number of Internet hosts per 100 people. We use the share of total exports and total imports in GDP as the dependent variables. Additionally, we consider the GDP share of exports and imports for goods and services separately. The main control variables are: per capita GDP growth, population growth, and the GDP growth for the rest of the world. The empirical results overwhelmingly suggest that Internet bandwidth, Internet subscriptions, and Internet hosts have significant positive impacts on export share while all four ICT variables including telecom investment growth have significant positive impacts on import shares in emerging market economies. This result is robust across shorter sample period, a subsample of EMEs, alternative estimation method, and alternative model specifications. [More..]

Spillover Effects Across Environmental Programs: the case of hazardous waste regulation in Michigan (2012)

Lirong Liu
Environmental Economics, Volume 3, Issue 2, 2012

Abstract: This paper investigates the compliance behavior of firms that are simultaneously regulated by multiple environmental programs. Three possible relationships among compliances with multiple programs are considered: complementarity, substitution and independence. These relationships reflect the spillover effects across environmental programs. A theoretical model of firm decision making is developed to show the possibilities of these relationships. The theoretical results are tested using data on facilities in Michigan that are regulated by hazardous waste (Reservation and Conservation Recovery Act, RCRA) and air programs (Clean Air Act, CAA). Results show evidence of positive cross-program effects. Inspections under CAA have positive and significant effects on facility compliance with RCRA. In addition, facilities subject to other environmental programs such as Toxic Release Inventory (TRI) or water regulation (Clean Water Act, CWA) also show better compliance status. With the presence of positive effects across environmental programs coordination is required among regulators to achieve the optimal monitoring and enforcement strategies. [More..]

Do Environmental Audits Improve Long-term Compliance? Evidence from Manufacturing Facilities in Michigan (2011)

Mary F. Evans, Lirong Liu, Sarah L. Stafford
Joural of Regulatory Economics (2011) 40:279–302

Abstract: Using a unique facility-level dataset from Michigan, we examine the effect of environmental auditing on manufacturing facilities’ long-term compliance with U.S. hazardous waste regulations. We also investigate the factors that affect facilities’ decisions to conduct environmental audits and whether auditing in turn affects the probability of regulatory inspections. We account for the potential endogeneity of our audit measure and the censoring of our compliance measure using a censored trivariate probit, which we estimate using simulated maximum likelihood. We find that larger facilities and those subject to more stringent regulations are more likely to audit; facilities with poor compliance records are less likely to audit. However, we find no significant long-run impact of auditing on the probability of a regulatory inspection or compliance among these Michigan manufacturing facilities. [More..]

Regulation with Direct Benefits of Information Disclosure and Imperfect Monitoring (2009)

Mary F. Evans, Scott M. Gilpatric, Lirong Liu
Journal of Environmental Economics and Management 57 (2009) 284–292

Abstract: We model the optimal design of programs requiring heterogeneous firms to disclose harmful emissions when disclosure yields both direct and indirect benefits. The indirect benefit arises from the internalization of social costs and resulting reduction in emissions. The direct benefit results from the disclosure of previously private information which is valuable to potentially harmed parties. Previous theoretical and empirical analyses of such programs restrict attention to the former benefit while the stated motivation for such programs highlights the latter benefit. When disclosure yields both direct and indirect benefits, policymakers face a tradeoff between inducing truthful self-reporting and deterring emissions. Internalizing the social costs of emissions, such as through an emissions tax, will deter emissions, but may also reduce incentives for firms to truthfully report their emissions. [More..]