This thesis addresses some of the fundamental assumptions made in the literature of environmental regulation. It looks specifically at the complex relationship between firms and regulators; it analyses the choice set of regulators in respect of whether to attempt to fully enforce compliance with some sort of pre-set level of legislation, or to accept some intermediate level. It then examines the choices firms face as to whether or not they should try to achieve compliance within the framework of existing legislation. One of the key aims of this thesis is to analyse the use of minimum informational requirements to achieve compliance with environmental regulation. The justification for this approach is the large costs involved with eliciting information about damage functions with regards to pollution, and the potential errors that exist within such measurements. Expected fines are not an innovation in the field of environmental regulation and have a large grounding in the literature of crime and punishment. Despite the fact that the expected fine is defined as the product of the probability of detection and optimal fine, it is the latter that has received most attention with the former tending largely to have been ignored. Chapter two addresses this issue by illustrating the importance of the probability of detection in reworking the standard model of crime and punishment, following notably Becker, and later Polinsky and Shavell. The duality of the expected fine is then better understood in order to explain why compliance is not as high in practice as one might expect from theory. This challenges the assumption that fines should be set as high as possible. The importance of the probability of detection with respect to budget constraints is then the starting point for the model of chapter three. A Cournot oligopolistic model of environmental regulation is presented which examines the effect that the number of firms in an industry have a compliance with environmental regulation. The most important result is that compliance tends to decrease as the number of firms increase. This contradicts several models in the literature, many of which have not adequately addressed the probability of detection when using expected fines.