Assuming expected profit maximization, the behavior of the firm and the optimum enforcement policy are examined. In the model, firms can engage in avoidance activity that can reduce the probability of being caught and fined. In addition, by the nature of pollution control technology, the effort of observing regulation may fail. Unlike Criminal activity, violation of environmental regulation is usually inadvertent rather than willful. Firms compare the efficiency of avoidance activity and that of complying activity. To deter violation and avoidance, the regulator should manage enforcement structure with the consideration of those efficiencies.
