The Value of Regulatory Discretion: Estimates From Environmental Inspections in India

Abstract

High pollution persists in many developing countries despite strict environmental rules. We use a field experiment and a structural model to study how plant emission standards are enforced. In collaboration with an Indian environmental regulator, we experimentally doubled the rate of inspection for treatment plants and required that the extra inspections be assigned randomly. We find that treatment plants only slightly increased compliance. We hypothesize that this weak effect is due to poor targeting, since the random inspections in the treatment found fewer extreme violators than the regulator's own discretionary inspections. To unbundle the roles of extra inspections and the removal of discretion over what plants to target, we set out a model of environmental regulation where the regulator targets inspections, based on a signal of pollution, to maximize plant abatement. Using the experiment to identify key parameters of the model, we find that the regulator aggressively targets its discretionary inspections, to the degree that half of the plants receive fewer than one inspection per year, while plants expected to be the dirtiest may receive ten. Counterfactual simulations show that discretion in targeting helps enforcement: inspections that the regulator assigns cause three times more abatement than would the same number of randomly assigned inspections. Nonetheless, we find that the regulator's information on plant pollution is poor, and improvements in monitoring would reduce emissions.

Monitoring Industrial Pollution in India

“…The starting point for this project is the ground-breaking RCT by Duflo et al (2013Duflo et al ( , 2018, which studied the role of information and monitoring in regulating industrial air pollution in Gujarat. When Duflo et al began this work in 2010, air pollution levels were rising across industrial cities in Gujarat.…”

“…In consequence, they were perhaps best viewed as simply an assessment of how industrial plants performed when on their best behavior. 4 Overall, Duflo et al (2013Duflo et al ( , 2018 suggest that high-quality, continuous information might be necessary to know which plants were polluting the most and that these monitoring improvements could potentially reduce emissions.…”

How to Achieve Carbon Neutrality: From the Perspective of Innovative City Pilot Policy in China

“…Due to the dramatic change in China’s economy over the past few decades, environmental problems such as climate warming have accelerated [ 1 ]. Climate warming, caused by excessive carbon dioxide emissions, has severely threatened global economic development [ 2 , 3 , 4 ]. In 2017, Xi Jinping clearly pointed out for the first time in his report to the 19th National Congress that the primary task in the new stage of development is to build a new paradigm that wins with quality.…”

Consequences and Drivers of Differentiated Environmental Regulation Policies on Hog Production in China: A Spatial Econometrics Approach

“…For developing countries, it is essential to balance economic development and environmental protection. Many studies have explored this question with respect to the industrial sector, including, but not limited to, how environmental regulation impacts firms' productivity, output, and labor demand (Greenstone, 2002;Walker, 2013;Liu et al, 2017;Duflo et al, 2018). This topic is relatively less studied in the livestock sector even though large animal feeding operations are heavily monitored by environmental agencies, as they are among the primary sources for both water and air pollution (Sneeringer, 2010;Kling, 2011).…”

“…Our research investigates the underlying drivers of environmental regulation and to what extent these factors and the stringency of policies control pollution. Building on the growing literature on environmental decentralization in developing countries (Van der Kamp et al, 2017;Duflo et al, 2018;Zhang et al, 2018;He et al, 2020), we discuss how this decentralized system affects livestock production in China. To our knowledge, this is the first paper to discuss the impact and mechanism of environmental regulation's effects on the productivity of livestock sectors in developing countries.…”