Research / BFI Working PaperSep 01, 2014

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

Nicholas Ryan, Michael Greenstone, Esther Duflo, Rohini Pande

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.

More Research From These Scholars

BFI Working Paper Dec 20, 2016

The Local Economic and Welfare Consequences of Hydraulic Fracturing

Michael Greenstone, Alexander W. Bartik, Janet Currie, Christopher R. Knittel
Topics:  Energy & Environment, Health care
BFI Working Paper Jan 15, 2021

Indoor Air Quality, Information, and Socio-Economic Status: Evidence from Delhi

Michael Greenstone, Kenneth Lee, Harshil Sahai
Topics:  Energy & Environment
BFI Working Paper Nov 3, 2020

Do Renewable Portfolio Standards Deliver Cost-Effective Carbon Abatement?

Michael Greenstone, Ishan Nath
Topics:  Energy & Environment