Ž . JOURNAL OF ENVIRONMENTAL ECONOMICS AND MANAGEMENT 31, 96111 1996 ARTICLE NO. 0034 Compliance and Enforcement: Air Pollution Regulation in the U.S. Steel Industry 1 WAYNE B. G RAY Department of Economics, Clark Uni  ersity, Worcester, Massachusetts 01610 AND MARY E. D EILY Department of Economics, Lehigh Uni  ersity, Bethlehem, Pennsyl  ania 18015 Received November 28, 1994; revised May 31, 1995 We use data on individual steel plants to study the relationship between regulators’ enforcement of air pollution regulations and firms’ compliance decisions. We find the expected interactions between the decisions: at the plant level, greater enforcement leads to greater compliance, while greater compliance leads to less enforcement. We also test whether differences in firms’ characteristics affect either compliance or enforcement decisions at the plant level, holding plant characteristics constant, and find that they seem to matter more for enforcement than for compliance.  1996 Academic Press, Inc. 1. INTRODUCTION Enacting pollution-control legislation is only the first step toward less pollution: continued monitoring and enforcement is necessary to ensure that firms invest in Ž  . the appropriate control technologyand that theyoperate it properly Russell 17 . However, little research exists on the actual regulatory experience: that is, how enforcement encourages compliance and how compliance behavior influences enforcement allocation. In this paper we use data on the steelmaking plants operated by integrated steel firms during the years 1980  1989 to study the links, at those plants, between enforcement of air pollution regulations and firms’ compli- ance decisions. Previous work on compliance and enforcement behavior utilizes industry-level   data or is focused on one of the two decisions. Magat and Viscusi 15 , examining pulp and paper mills’ compliance with water pollution regulations, found that  inspections increase future compliance. Bartel and Thomas 2 estimated a three- equation model of compliance, injury rates, and OSHA enforcement decisions, and found that, across industries, the probability of inspection increases average industry compliance, but that average compliance rates have no significant affect 1 We thank participants of the Martindale Center Seminar Series at Lehigh University, and of the Resources for the Future Seminar Series, for their comments; Stephen Karlson, who very kindly sent us data; and Louis Nadeau, for research assistance. Monetary support was provided by National Science Foundation Grant SES-8921277, and by the Environmental Protection Agency’s Environmental Sci- ences Research Division, Grant R81-9843-010. 96 0095-069696 $18.00 Copyright  1996 by Academic Press, Inc. All rights of reproduction in any form reserved.