Enforcement of Pollution Regulations in a Declining Industry

A regulatory agency enforcing compliance in a declining industry might recognize that certain plants would close rather than comply, and that these closings would impose large costs on the local community. EPA enforcement activity in the U.S. steel industry is examined for evidence of this result. A three-equation system linking EPA enforcement decisions, company plant-closing decisions, and company compliance decisions is estimated. The results indicate that the EPA directed fewer enforcement actions toward plants with a high predicted probability of closing and plants that were major employers in their community; also, plants predicted to face relatively heavy enforcement were more likely to close.