ESTIMATING THE IMPACT OF REGULATORY PROGRAM ENFORCEMENT - PRACTICAL IMPLICATIONS OF POSITIVE POLITICAL-THEORY

The most common model for estimating the impact of regulatory program enforcement on intended outcomes is based on a standard version of det errence theory. The corresponding estimating equation regards the amou nt of noncompliance by a firm as a linear function of enforcement by t he regulatory agency, holding a variety of other variables constant. T his article shows, based on recent theories informal political science about how regulatory programs are likely to be implemented, that an e quation of this form is likely to produce biased estimates. Specifical ly, the literature implies that the function should probably be a seco nd-degree polynomial; that it should be two simultaneous equations, wi th one for compliance and one for enforcement; and that relevant equat ions should include variables that characterize the political colorati on of the local area in which enforcement and compliance decisions are made. The general conclusion is that theory and method cannot and nee d not be separated. Evaluators of regulatory programs who overlook for mal models of regulatory program implementation and who rely on outmod ed models of deterrence will produce incorrect findings about the effe ctiveness of those programs.