Ambient inspections in environmental enforcement: an extension

We consider an inspection game between an arbitrary number of polluting firms and an agency who can choose to monitor ambient pollution. We obtain an equilibrium where all firms comply with the same probability and where the inspection agency inspects all firms individually if ambient pollution exceeds an endogenous threshold. If the fine for noncompliance is high enough, the agency's costs are lower then if it does not monitor ambient pollution. If the firms believe the agency's announcement that it conducts ambient inspections, their probability of compliance can be so high that the agency will want to deviate.