An investigation of voluntary discovery and disclosure of environmental violations using laboratory experiments

State and federal self-discovery and disclosure rules seek to encourage greater compliance with environmental regulations by reducing penalties for violations that are voluntarily discovered and reported to authorities. For example, the EPA’s Audit Policy reduces penalties “for regulated entities that voluntarily discover, promptly disclose, and expeditiously correct noncompliance.”1 Concurrent with the implementation of rules for voluntary discovery and disclosure of environmental violations over the last decade or so, a significant body of literature emerged that examines the conceptual properties of these rules (e.g., Malik, 1993; Kaplow and Shavell, 1994; Innes, 1999, 2001a, 2001b; Pfaff and Sanchirico, 2000). Taken as a whole this literature is noncommittal on the question of whether voluntary disclosure policies are worthwhile complements to conventional enforcement strategies. In fact, provided that the predictions about the performance of voluntary disclosure policies hold up under empirical scrutiny, it is clear that whether these schemes are worthwhile will depend upon the specifics of particular regulatory settings.