Big field, small potatoes: An empirical assessment of EPA's self-audit policy

Environmental self-auditing by private firms is generally thought to both deserveand require encouragement. Firms can audit themselves more cheaply andeffectively than can regulators, but too often are deterred for fear that theinformation they uncover will be used against them. To reduce this disincentive,the EPA's "Audit Policy" lowers punitive fines when firms promptly discloseand correct violations that they themselves discover. While some contend thatthe Audit Policy is inadequate, EPA touts its success, presenting as evidence thepolicy's track record to date. Yet our examination of that track record leads us toquestion EPA's conclusions. While the policy appears to have encouraged firmsto self-audit in a number of instances, a comparison of the violations uncoveredin these cases with those detected by standard enforcement practices suggeststhat the typical self-audited violation is relatively minor. For instance, casesarising under the Audit Policy are more likely to concern reporting violations,rather than emissions. The relative insignificance of self-audited violations raisesa number of broader policy questions, including whether the Audit Policy couldand should be revised to play a larger role in regulatory enforcement.