Why Does General Deterrence Exist? A Study of Drinking Water Quality Regulation

This paper studies the general deterrence effect associated with regulatory enforcement actions, using data on the quality violations and regulatory enforcement records of all 141,290 active drinking water systems in the U.S. between 1980 and 2017. We find that general deterrence among drinking water systems is much more prominent when the enforcement actions are coercive as opposed to cooperative in nature, and that it only exists among water systems that are not repeat violators. Assuming general deterrence is a response to new information revealed about the regulator, we postulate this information has to do with either (1) the regulator’s type, i.e., how pro-corporate vs. pro-environment the regulator is, or (2) the regulator’s level of resource constraints, since regulators become more strategic in enforcement when they are subject to resource constraints. Contradicting (1) but in support of (2), we find that general deterrence is unchanged or disappears during regulator turnover, when uncertainty about the regulator’s type is high, whereas general deterrence is stronger for regulators with tighter budget constraints