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Abstract
By targeting enforcement efforts on specific segments of the regulated community,
greater compliance with environmental regulations can be achieved. In this paper, the
inspection minimizing targeting scheme with two groups is derived. Firms are moved
at random into the target group, while escape from the target group occurs only when
an inspection reveals the firm is in compliance. The optimal targeting scheme reduces
inspection costs compared with the strategy suggested by Harrington (1988), where
firms are moved into the target group on the basis of compliance record. However,
the range of parameter values for which the optimal solution is feasible is limited.