Strategic implementation of environmental policy: What motivates the environmental bureaucrats in a federalist system?

When the governmental authorities for environmental regulation are devolved to lower level of governments, the governmental units in charge may engage in strategic behavior that is harmful to the society as a whole. First, the governmental units anticipating trans-boundary spillover of pollution may try to free-ride by excessively lowering the level of environmental regulation (the trans-boundary free-riding behavior, TBFR). Second, the governmental units may engage in detrimental competition of excessively lowering environmental regulation in order to attract businesses and achieve economic prosperity in their jurisdictions (the pollution haven behavior, PH). As consequences of the strategic behavior, the jurisdictional borders may suffer disproportionate burden of lenient regulation (border leniency) and deterioration of environmental quality (border pollution).;In this dissertation, I investigate the strategic behavior of governmental units, using the border leniency as the leverage. The implementation of water pollution regulation in the United States is largely devolved to the states. Despite the federal standard-setting and oversight mechanisms, the states still have the latitude to differentiate the regulatory stringency with respect to borders and behave strategically, and the institutional mechanisms designed to discourage the strategic motivation are largely deemed ineffective.;To empirically test and explain the strategic behavior, I examine three implementation activities (permitting, enforcement, and imposing penalties) for the Clean Water Act conducted by state and federal regulators. While the extant literature indicated the U.S. interstate borders are suffering disproportionate level of pollution, the strategic behavior itself was never confirmed at the regulatory activity level. Also, I empirically determine the underlying motivation (TBFR vs. PH) behind the border leniency by comparing the regulation towards municipal and industrial polluters.;My econometric analyses indicate that the governmental units often do engage in the strategic behavior by reducing the regulatory stringency near jurisdictional borders. I provide the first direct evidence at regulatory activity level that U.S. states engage in the strategic behavior on interstate borders. The strategic behavior was most prominent in permitting activity, as the technical complexity makes it less transparent to public eyes. It was also revealed that border leniency is based on the TBFR motivation, which clearly entails welfare loss.