Can a costly reporting system make environmental enforcement more efficient?

A formal mathematical model is developed to ascertain the effectiveness of a reporting system for improving the enforcement of environmental laws and regulations when reports are costly. To model realistic enforcement problems arising over environmental issues such as compliance to water and air quality standards, a formal enforcement model is constructed using concepts from probability and statistics, non-cooperative game theory, and economics. In order to demonstrate clearly the benefits gained when an environmental agency takes advantage of a reporting system, a formal enforcement model with a costly reporting system is rigorously compared to one with no reporting system. The calculation and comparison of Nash equilibria for a range of values of model parameters indicates under what conditions a reporting system can be truly effective. Overall, it is found that a reporting system, such as whistle-blowing, can be helpful for reducing violations of environmental standards, thereby maintaining better environmental quality.

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