In collaboration with a state environmental regulator in India, we conducted a field experiment to raise the frequency of environmental inspections to the prescribed minimum for a random set of industrial plants. The treatment was successful when judged by process measures, as treatment plants, relative to the control group, were more than twice as likely to be inspected and to be cited for violating pollution standards. Yet the treatment was weaker for more consequential outcomes: the regulator was no more likely to identify extreme polluters (i.e., plants with emissions five times the regulatory standard or more) or to impose costly penalties in the treatment group. In response to the added scrutiny, treatment plants only marginally increased compliance with standards and did not significantly reduce mean pollution emissions. To explain these results and recover the full costs of environmental regulation, we model the regulatory process as a dynamic discrete game where the regulator chooses whether to penalize and plants choose whether to abate to avoid future sanctions. We estimate this model using original data on 10,000 interactions between plants and the regulator. Our estimates imply that the costs of environmental regulation are largely reserved for extremely polluting plants. Applying the cost estimates to the experimental data, we find the average treatment inspection imposes about half the cost on plants that the average control inspection does, because the randomly assigned inspections in the treatment are less likely than normal discretionary inspections to target such extreme polluters.
Areas of Focus: Climate Change
, Climate Law & Policy
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Law & Policy
As countries around the world implement policies to confront climate change, EPIC research is calculating which policies will have the most impact for the least cost.
, Air Pollution
Producing and using energy damages people’s health and the environment. EPIC research is quantifying the social costs of energy choices and uncovering policies that help protect health while facilitating growth.
, Environmental Health
Air pollution from fossil fuel combustion poses a grave threat to human health worldwide. EPIC research is using real-world data to calculate the effects of air pollution on human health...
Energy and industrial processes introduce toxins into the environment. EPIC research is helping to educate policymakers and consumers on the social and economic costs of this pollution, and the potential...