This paper analyzes the regulatory factors shaping environmental performance at individual polluting facilities. In particular, it examines the influence of actual government interventions, namely, inspections and enforcement actions performed at specific facilities. This influence represents specific deterrence. This paper also examines general deterrence, that is, the threat of receiving an intervention. As important, it controls for differences in certain regulatory features of facility-specific pollution control permits. Unlike previous attempts to examine regulatory factors, this analysis uses panel data techniques to capture the heterogeneity across individual facilities, while exploring the dynamics of each facility; the analysis also captures heterogeneity across individual time periods.

This paper uses principal-agent theory to examine the optimal mix of monetary- and resource-based penalties in two institutional settings: a market economy and a centrally planned economy. In a centrally planned economy, an agent's wealth depends mostly on real resources and little on monetary resources; therefore, monetary-based penalties have less penalizing power than do resource-based penalties. Based on this premise, theory generates hypotheses regarding differences in the optimal mix of penalty types between the two economic systems. This paper empirically tests these hypotheses using data from the Czech Republic regarding enforcement responses to water-damaging accidents (such as oil spills).