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(Kaufman 1960, Blau 1963). We analyze the interaction between newly evolving
community-based institutions and the preexisting federal pollution control program introduced
by the 1972 Clean Water Act (CWA) to test whether local institutions complement or compete
with the centralized, command-and-control structure that enforces the CWA.
A primary goal of this article is to look beyond the formal authoritative relationships
emphasized in the principal-agent perspective and to explore the systematic role played by
informal policy networks in the federalist system of governance. Within this broader
perspective, we develop a model of incentives facing both regulatory enforcers and regulated
firms and test it using data from over 4000 major NPDES permit holders during 1994-2000.
This research inevitably touches on some of the most difficult problems of governance: the
interaction between natural and human systems, the partitioning of complex governance
problems into independent authority systems, the design of rules and institutions to overcome
collective action problems regarding the use of natural resources, political controls over
enforcement agencies, and the relationship between regulatory agency outputs (inspections and
citations) and outcomes (compliance by regulated firms).
The NPDES Permit System and the Evolution of Fragmentation
The response of the water governance system to water pollution issues illustrates how
fragmentation develops even for relatively successful programs. The CWA authorized the first
effective national constraint on industrial and municipal discharge of effluents into the nation’s
waterways. The CWA authorized the Environmental Protection Agency (EPA) to develop the
NPDES permit system that required all dischargers to obtain permits limiting allowable
discharges, and to enforce the limits.
From a federalist perspective, assigning authority at the federal level for this first set of
effective effluent discharge rules offered several advantages over local institutional alternatives.
First, water pollution problems generally overlap existing municipal, county, and even state
jurisdictions, so no single jurisdiction could effectively regulate pollution without coordinating
with other jurisdictions, particularly with upstream jurisdictions less affected by their own
internal sources of pollution. Second, a central arena concentrated the resources necessary to
develop scientific knowledge and negotiate technically feasible and enforceable regulations,
eliminating the duplication required for new policy developments in multiple local arenas.
Third, large industrial and municipal sewage plants contributed a very large proportion of the
pollution problem at the time. These large point sources of pollution had the resources required
to develop and rapidly deploy discharge reduction technologies, but also had the political clout
and policy expertise to block local attempts to impose and enforce restrictions. Given the
Convention