Enforcement of Environmental Standards and the Central Limit Theorem

Abstract

A simulation model of enforcement of the federal new source fly ash standard for coal-fired power plants indicates the standard is likely to be frequently violated. This is partly due to a pollution control device certification test which allows the average of as few as three tests to be used as an indicator of compliance. In accordance with the central limit theorem, this can lead to selection of inadequate control devices. Enforcement systems must account for the stochastic properties of pollution control devices and the implications of certification test sampling procedures for firm behavior if effective enforcement is to be achieved.