Prescriptive measures for environmental performance: emission standards, overcompliance, and monitoring

This paper studies optimal regulation when a regulator can exploit two levers: traditional enforcement and certification. The objective is to demonstrate how regulation can be adapted by combining theory and empirical regularities in the existing literature. The key result is that a regulatory scheme that allows the regulator to exploit overcompliance certification as well as traditional enforcement can achieve substantively greater environmental performance: a firm now has clear incentives to overcomply, and the others have to improve environmental performance through more stringent optimal standards.