Competitor Lobbying and Regulatory Oversight.

with Benjamin Barber IV

How can regulatory agencies, operating in an environment of asymmetric information, ensure that laws are being followed? We argue that lobbying by industry competitors provides agencies with information that helps them target enforcement actions towards violators that would cause the greatest harm. Empirically, we examine the effect of competitor lobbying on fines levied by the US Environmental Protection Agency (EPA). Analyzing panel data from 10,369 facilities from 2001-2013 using fixed effects models, we show that facilities which would pose a substantial threat if they violated regulations are more likely to be fined when their competitors lobby the EPA compared to facilities in non-lobbying industries. Facilities whose violations pose little threat are less likely to be fined when their competitors lobby than those in non-lobbying industries. We also show that the effect of competitor lobbying decreases as rivals are located farther away, which suggests local industry knowledge as a mechanism.