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Formal and Informal Regulation of Industrial Pollution: Comparative Evidence from Indonesia and the United States


  • Pargal, Sheoli, et al


Economic theory and recent empirical work suggest that when formal regulation of pollution is absent or less than 100 percent effective, affected communities are often able to negotiate abatement from plants in their vicinity through "informal regulation. Using a model of equilibrium pollution, this article confirms the existence of significant informal regulation for unregulated pollutants in both Indonesia and the United States as well as for regulated pollutants in the United States. Combining plant-level data with community data in both countries, regressions reveal that even after controlling for traditional economic variables such as output levels and input prices as well as for plant characteristics such as industrial sector and age, the per capita income of affected communities significantly affects pollution intensities. Higher-income communities win significantly lower emissions in both countries and for both unregulated and regulated pollutants in the United States, presumably because income affects both preferences for environmental quality and the ability to bring pressure on polluting factories. Copyright 1997 by Oxford University Press.

Suggested Citation

  • Pargal, Sheoli, et al, 1997. "Formal and Informal Regulation of Industrial Pollution: Comparative Evidence from Indonesia and the United States," World Bank Economic Review, World Bank Group, vol. 11(3), pages 433-450, September.
  • Handle: RePEc:oup:wbecrv:v:11:y:1997:i:3:p:433-50

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    Cited by:

    1. Gangadharan, Lata, 2006. "Environmental compliance by firms in the manufacturing sector in Mexico," Ecological Economics, Elsevier, vol. 59(4), pages 477-486, October.
    2. Wang, Hua & Wheeler, David, 2005. "Financial incentives and endogenous enforcement in China's pollution levy system," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 174-196, January.
    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. Wang,Hua*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.
    5. Hua Wang, 2000. "Pollution charges, community pressure, and abatement cost of industrial pollution in China," Policy Research Working Paper Series 2337, The World Bank.
    6. 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.
    7. Xie, Rong-hui & Yuan, Yi-jun & Huang, Jing-jing, 2017. "Different Types of Environmental Regulations and Heterogeneous Influence on “Green” Productivity: Evidence from China," Ecological Economics, Elsevier, vol. 132(C), pages 104-112.

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