Optimal Enforcement of Uniform Pollution Standards When Marginal Pollution Damage Costs Differ among Firms—The EPA’s New CAFO Rules

The EPA’s 2003 and 2008 National Pollution Discharge Elimination System for Confined Animal Feeding Operations (CAFOs) expanded the scope and stringency of the regulation of CAFOs but provided few if any additional enforcement resources. Enforcement of earlier regulations was poor, and the new regulations are likely to worsen this problem because they embody the usual approach of imposing one-size-fits-all rules. Because the likely damages from effluents vary greatly among CAFOs, depending on location, a system of emission fees that depend on likely damages would be more efficient. Alternatively, regulators could tailor enforcement efforts to probable damages. This paper provides a model that includes the total cost of regulation, including the government’s monitoring and enforcement resources. Deploying fewer monitoring and enforcement resources on low-damage CAFOs and more on high-damage CAFOs can improve the efficiency of the regulatory regime, relative to equal enforcement of uniform regulations