Prescriptive Measures for Environmental Performance : Emission Standards, Over-Compliance, and Monitoring

This paper studies optimal regulation when a regulator can exploit two levers: traditional enforcement and certification. The objective is to demonstrate how regulation can be adapted by combining theory and empirical regularities in the existing literature. The key result is that a regulatory scheme that allows the regulator to exploit over-compliance certification as well as traditional enforcement can achieve substantively greater environmental performance: a firm now has clear incentives to over-comply, and the others have to improve environmental performance through more stringent optimal standards