Can learning explain deterrence? Evidence from oil and gas production

This paper tests a learning model of regulatory deterrence. Firms exert compliance effort based on their belief about a regulator’s effort level at detecting violations. Firms use regulatory actions to learn about the regulator and update their own compliance efforts accordingly. This theoretical model suggests that deterrence will decrease with experience. Econometric analysis of inspections of Pennsylvania oil and gas wells supports the model. Econometric results show that inexperienced firms are substantially more deterred than experienced firms. These results are robust to regulatory targeting in inspections and different measures of experience and deterrence.

Duke Scholars

Author Peter Maniloff Environmental Sciences and Policy