Policy devolution and cooperation dilemmas

How do public good spillovers influence agent effort in an interconnected environment? We develop a model for a general class of problems in which agents share the provision of a public good and downstream agents experience spillovers. We characterize endogenous agent effort as the result of their location in the network, their responsibility over the resource, and a regulated facility’s location within the jurisdiction. We examine our findings with an empirical exercise centered on the regulation of 6000 major water pollution sources under the U.S. Clean Water Act. We construct a novel dataset of U.S. state water pollution regional offices and use geographic information on agency jurisdictions, watershed boundaries, and elevation-induced streamflow to characterize the propensity for agents to exert detection effort in their local environment. Our empirical results support our expectations.