Estimating the Settlement Process in Environmental Litigation: A Game-theoretic Approach

Enforcement of environmental regulations takes three forms: inspection, detection, and finally the accessing of penalties. While the first two aspects have been extensively studied, the final stage has received little attention. Accessing penalties for violations of environmental statutes and regulations is a crucial part of regulatory policy. Most penalty assessment at the federal level is done through litigation; most of that litigation results in a mutually agreed-upon settlement between the Department of Justice (acting at the behest of the Environmental Protection Agency) and the defendant in the case. This research explores a simple game-theoretic model of the process that leads to settlement in civil environmental litigation. The researchers then test an econometrically tractable model of the attributes of the settlement process. Understanding the settlement process in civil environmental litigation is particularly important. The litigation process has been extensively studied in civil matters between private parties, and in criminal litigation where one branch of the government acts as prosecutor and another as judge. In contrast, very little has been done on civil environmental actions, which share the charter of criminal prosecutions in that the government is the plaintiff, but where the possibility of incarceration is remote. There are important reasons to believe that the government behaves differently when it is a plaintiff in civil litigation. First, the government has different incentives than do private litigants. Because the government is a repeat player in the courts it is likely to be more concerned with its reputation than most private litigants. Second, the government is interested not only in the money received from the litigation but also in the political return. This research advances the relevant literature in three separate ways. First, it represents an investigation into an area of environmental policy that has not yet been previously studied. Second, the project fills the void relating to empirical work on bargaining problems. Finally, this project investigates the differences in how the Environmental Protection Agency and the Department of Justice view the enforcement of cases against violators of the environmental laws.