This paper provides a lobby group theory based on Prat and Rustichini (Econometrica 2003) which suggests that the effect of foreign direct investment (FDI) on environmental policies is conditional on the structure of host countries' political institutions. In particular, FDI raises environmental policy stringency where the number of legislative units (such as the chambers of parliament or congress, government parties, the president, or the prime minister) are many, but reduces it where the legislative units are few. Our panel data evidence is fully consistent with this prediction. Pollution havens are thus more likely to occur in countries with institutional structures involving few legislative units. Finally, we show the empirical importance of endogenizing environmental policy in pollution haven hypothesis studies. Only when environmental policy is treated as endogenous does environmental policy stringency have a significant negative effect on FDI. This sheds new light on the existing literature on the pollution haven hypothesis.