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Formal and informal regulation of industrial pollution : comparative evidence from Indonesia and the United States


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  • Pargal, Sheoli
  • Hettige, Hemamala
  • Singh, Manjula
  • Wheeler, David
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    The authors start from the premise that governments act as agents of the public in regulating pollution, using the instruments at their disposal. But when formal regulatory mechanisms are absent or ineffective, communities will seek other means of translating their preferences into reality. Recent empirical work suggests the widespread existence of such informal regulation: communities are often ableto negotiate with or otherwise informally pressure polluting plants in their vicinity to clean up. Their thesis is that such informal regulation is likely wherever formal regulation leaves a gap between actual and locally preferred environmental quality. They use plant-level data from Indonesia and the United States -two countries that are very different, both socio-economically and in terms of pollution regulation- to test a model of equilibrium pollution under informal regulation. Their results suggest three common elements across countries and pollutants: abatement is generally subject to significant scale economies; within-country variations in labor and energy prices have little impact on pollution intensity; community incomes have a powerful negative association with pollution intensity. Their findings on community income are especially important, as they suggest a powerful role for informal regulation whether or not formal regulation is in place. The impact of income disparity on inter-county differences in U.S. pollution intensities seems to match the impact in Indonesia. Undoubtedly, this reflects differences in both preference for environmental quality and ability to bring pressure on polluting factories. The fact that such disparities exist in the United States, even for traditionally regulated pollutants, shows that U.S. regulation has not been able to ensure uniform environmental quality for all citizens regardless of income class.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1797.

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    Date of creation: 31 Jul 1997
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    Handle: RePEc:wbk:wbrwps:1797

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    Keywords: Water and Industry; Environmental Economics&Policies; Sanitation and Sewerage; Public Health Promotion; Water Conservation; Energy and Environment; Environmental Economics&Policies; Water and Industry; TF030632-DANISH CTF - FY05 (DAC PART COUNTRIES GNP PER CAPITA BELOW USD 2; 500/AL; Sanitation and Sewerage;

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    Cited by:
    1. Jin, Yanhong & Wang, Hua & Wheeler, David, 2010. "Environmental performance rating and disclosure : an empirical investigation of China's green watch program," Policy Research Working Paper Series 5420, The World Bank.
    2. Lata Gangadharan, 2003. "Environmental Compliance by Firms in the Manufacturing Sector in Mexico," Department of Economics - Working Papers Series, The University of Melbourne 881, The University of Melbourne.
    3. Heyes, Anthony & Kapur, Sandeep, 2012. "Community pressure for green behavior," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 427-441.
    4. Kathuria, Vinish, 2007. "Informal regulation of pollution in a developing country: Evidence from India," Ecological Economics, Elsevier, vol. 63(2-3), pages 403-417, August.
    5. Hua Wang & Ming Chen, 1999. "How the Chinese system of charges and subsidies affects pollution control efforts by China's top industrial polluters," Policy Research Working Paper Series 2198, The World Bank.
    6. Hua Wang, 2000. "Pollution charges, community pressure, and abatement cost of industrial pollution in China," Policy Research Working Paper Series 2337, The World Bank.


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