Regulating Industrial Pollution: Experimental Evidence from India

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

Intellectual Merit: Can environmental regulations reduce pollution in developing countries? The stakes for the answer to this question are high. Pollution concentrations in India, China, and other developing countries are at levels that exceed the highest concentrations recorded in developed countries. Further, there is compelling evidence that pollution kills people prematurely and otherwise harms health (Ransom and Pope 1995; Chay and Greenstone 2003; Almond et al. 2010). Yet, there is great skepticism that complex environmental laws can be successfully enforced in many developing countries due to poor funding for regulators and corruption. This project will produce rigorous evidence on how politically-feasible changes in regulation can reduce pollution in India, an important developing-world context. The study uses a unique, large-scale randomized experiment conducted in one of India's fastest-growing and most polluted industrial states to evaluate the efficacy of improvements in two common instruments - inspections by state regulators and private third-party environmental audits - at reducing plant-level pollution. These improvements were designed and the evaluation is being conducted jointly with the environmental regulator. The context of the study and direct partnership with the regulator ensure high external validity and the ability to scale successful project findings to other Indian states. The estimated causal effects of regulation on pollution levels will be the first experimental evidence on these questions, which have been studied extensively in the United States (e.g., Chay and Greenstone 2005; Greenstone 2004), and much less in rapidly industrializing countries. We will also estimate the costs of increased environmental compliance for plants and whether plant-level regulation generates spillover effects. The project will also study the political economy of the regulatory process. The PI's will examine how increasing the independence of auditors from audited industrial plants changes the accuracy of audit information. Administrative data from the files of the regulator will help identify when and why violations lead to sanctions. This will shed light on the limits to pollution enforcement in a developing-country context. Broader Impacts: The project will have broader impacts on the design of environmental regulation in the developing world. The results will have a direct bearing on the best regulatory structure for Gujarat and other Indian states and therefore an indirect bearing on the air and water quality of over a billion Indian citizens. National environmental policymakers have already expressed interest in using the project's findings and have begun the dissemination process by hosting a conference for state regulators to share ideas on environmental regulation. The project's impact is also applicable to other contexts, such as health and finance, where hird-party audits are part of the regulatory system The research project is associated with mentoring of graduate and master?s students in the United States. It will also improve infrastructure for research and education in India, by strengthening relationships between the U.S.-based PIs, Indian researchers and local project partners, including governmental and non-governmental bodies, working in the environmental sector in India. The implementation of the project itself will expand the availability of environmental information, and the results and newly-generated dataset will be disseminated broadly, to both academic and popular audiences.