Voluntary agreements and private enforcement of environmental regulation

This paper focuses on a type of voluntary pollution abatement agreement (VA) in which the regulator offers regulatory relief for the participating firm in exchange for environmental improvements. If the regulator does not have statutory authority to provide regulatory relief, the VA can leave the firm more vulnerable to legal challenges through citizen lawsuits. I use a model of negotiated VAs to examine the impact of citizen enforcement on the likelihood of an agreement and on the outcome of a VA. The findings indicate that both the probabilities of enforcement by the regulatory agency and of private enforcement through a citizen lawsuit affect the likelihood of a VA and the level of abatement when an agreement is reached. A VA can result in higher abatement and net social benefits than regulation if the probability of private enforcement and accompanying costs are high and the probability of agency enforcement is low.