Remediation and self-reporting in optimal law enforcement

Many environmental laws encourage firms to self-report their violations to government regulators, rather than subject themselves to probabilistic enforcement. This paper studies self-reporting enforcement regimes when there are ex-post benefits of remediation or clean-up. Remediation benefits are shown to impart two advantages to the use of self-reporting beyond those identified elsewhere. Firstly, whereas non-reporting firms only engage in costly clean-up when they are caught by an enforcement authority, self-reporting firms always engage in efficient remediation. Secondly, with self-reporting, the government can costlessly impose stiffer non-reporter penalties that reduce the government enforcement effort required to achieve a given level of violation deterrence. (C) 1999 Elsevier Science S.A. All rights reserved.