IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/21763.html
   My bibliography  Save this paper

When do Firms Go Green? Comparing Command and Control Regulations with Price Incentives in India

Author

Listed:
  • Ann Harrison
  • Benjamin Hyman
  • Leslie Martin
  • Shanthi Nataraj

Abstract

There are two commonly accepted views about command-and-control (CAC) environmental regulation. First, CAC delivers environmental outcomes at very high cost. Second, in a developing country with weak regulatory institutions, CACs may not even yield environmental benefits: regulators can force firms to install pollution abatement equipment, but cannot ensure that they use it. We examine India's experience and find evidence that CAC policies achieved substantial environmental benefits at a relatively low cost. Constructing an establishment-level panel from 1998 to 2009, we find that the CAC regulations imposed by India's Supreme Court on 17 cities improved air quality with little effect on establishment productivity. We document a strong effect of deterred entry of high-polluting industries into regulated cities; however little effect on the overall level of manufacturing output, employment, or productivity in those cities. We also find sustained reductions in within-establishment coal use, with no evidence of leakage into other fuels. To benchmark our results, we use variation in coal prices to compare the CAC policies to price incentives. We show that CAC regulations were primarily effective at reducing coal consumption of large urban polluters, while a coal tax is likely to have a broader impact across all establishment types. Our estimated coal price elasticity suggests that a 15-30% excise tax would be needed to generate reductions in coal consumption equivalent to those produced by these CAC policies.

Suggested Citation

  • Ann Harrison & Benjamin Hyman & Leslie Martin & Shanthi Nataraj, 2015. "When do Firms Go Green? Comparing Command and Control Regulations with Price Incentives in India," NBER Working Papers 21763, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21763
    Note: EEE ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w21763.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Antonio Estache & Liam Wren-Lewis, 2009. "Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 729-770, September.
    2. Leslie A. Martin & Shanthi Nataraj & Ann E. Harrison, 2017. "In with the Big, Out with the Small: Removing Small-Scale Reservations in India," American Economic Review, American Economic Association, vol. 107(2), pages 354-386, February.
    3. Khanna, Madhu & Zilberman, David, 2001. "Adoption of energy efficient technologies and carbon abatement: the electricity generating sector in India," Energy Economics, Elsevier, vol. 23(6), pages 637-658, November.
    4. Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 27(2), pages 202-228.
    5. Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, pages 202-228.
    6. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    7. Laffont,Jean-Jacques, 2005. "Regulation and Development," Cambridge Books, Cambridge University Press, number 9780521840187.
    8. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Puja Singhal, 2018. "Environmental Regulations: Lessons from the Command-and-Control Approach," DIW Roundup: Politik im Fokus 124, DIW Berlin, German Institute for Economic Research.
    2. Götz, Martin, 2018. "Financial constraints and corporate environmental responsibility," SAFE Working Paper Series 241, Leibniz Institute for Financial Research SAFE.
    3. Li, Hai-ling & Zhu, Xue-hong & Chen, Jin-yu & Jiang, Fei-tao, 2019. "Environmental regulations, environmental governance efficiency and the green transformation of China's iron and steel enterprises," Ecological Economics, Elsevier, vol. 165(C), pages 1-1.
    4. Brucal, Arlan & Javorcik, Beata & Love, Inessa, 2019. "Good for the environment, good for business: Foreign acquisitions and energy intensity," Journal of International Economics, Elsevier, vol. 121(C).
    5. Inessa Love & Beata Javorcik & Arlan Brucal, 2017. "Pollution Haven or Halo? Evidence from Foreign Acquisitions in Indonesia," 2017 Meeting Papers 306, Society for Economic Dynamics.
    6. Arlan Brucal, Inessa Love, Beata Javorcik, 2018. "Energy savings through foreign acquisitions? Evidence from Indonesian manufacturing plants," GRI Working Papers 289, Grantham Research Institute on Climate Change and the Environment.
    7. Yueming Qiu & Shuai Yin & Yi David Wang, 2016. "Peer Effects and Voluntary Green Building Certification," Sustainability, MDPI, Open Access Journal, vol. 8(7), pages 1-15, July.
    8. Puja Singhal, 2018. "Are Emission Performance Standards Effective in Pollution Control? Evidence from the EU's Large Combustion Plant Directive," Discussion Papers of DIW Berlin 1773, DIW Berlin, German Institute for Economic Research.
    9. Goetz, Martin, 2019. "Financing conditions and toxic emissions," SAFE Working Paper Series 254, Leibniz Institute for Financial Research SAFE.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ann E. Harrison & Ben Hyman & Leslie A. Martin & Shanthi Nataraj, 2015. "When do Firms Go Green? Comparing Price Incentives with Command and Control Regulations in India," Working Papers WR-1133, RAND Corporation.
    2. Xu, Jiajun & Ru, Xinshun & Song, Pengcheng, 2021. "Can a new model of infrastructure financing mitigate credit rationing in poorly governed countries?," Economic Modelling, Elsevier, vol. 95(C), pages 111-120.
    3. Iossa, Elisabetta & Martimort, David, 2016. "Corruption in PPPs, incentives and contract incompleteness," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 85-100.
    4. Brucal, Arlan & Javorcik, Beata & Love, Inessa, 2019. "Good for the environment, good for business: Foreign acquisitions and energy intensity," Journal of International Economics, Elsevier, vol. 121(C).
    5. Vadym Volosovych & Carolina Villegas Sanchez & Bent Sorensen & Sebnem Kalemli-Ozcan, 2017. "Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects," 2017 Meeting Papers 1194, Society for Economic Dynamics.
    6. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
    7. Javorcik, Beata S. & Li, Yue, 2013. "Do the biggest aisles serve a brighter future? Global retail chains and their implications for Romania," Journal of International Economics, Elsevier, vol. 90(2), pages 348-363.
    8. Jamasb, Tooraj & Thakur, Tripta & Bag, Baidyanath, 2018. "Smart electricity distribution networks, business models, and application for developing countries," Energy Policy, Elsevier, vol. 114(C), pages 22-29.
    9. Mohamad, Noorihsan, 2014. "Telecommunications reform and efficiency performance: Do good institutions matter?," Telecommunications Policy, Elsevier, vol. 38(1), pages 49-65.
    10. Mande Buafua, Patrick, 2015. "Efficiency of urban water supply in Sub-Saharan Africa: Do organization and regulation matter?," Utilities Policy, Elsevier, vol. 37(C), pages 13-22.
    11. Paul S. Segerstrom & Yoichi Sugita, 2015. "The Impact Of Trade Liberalization On Industrial Productivity," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1167-1179, December.
    12. Michele Imbruno, 2015. "Firm efficiency and Input market integration Trade versus FDI," FIW Working Paper series 154, FIW.
    13. repec:bri:cmpowp:13/325 is not listed on IDEAS
    14. Kang, Fei & Hauge, Janice A. & Lu, Ting-Jie, 2012. "Competition and mobile network investment in China’s telecommunications industry," Telecommunications Policy, Elsevier, vol. 36(10), pages 901-913.
    15. Arlan Brucal, Inessa Love, Beata Javorcik, 2018. "Energy savings through foreign acquisitions? Evidence from Indonesian manufacturing plants," GRI Working Papers 289, Grantham Research Institute on Climate Change and the Environment.
    16. Jensen, Olivia & Wu, Xun, 2017. "The hybrid model for economic regulation of water utilities: Mission impossible?," Utilities Policy, Elsevier, vol. 48(C), pages 122-131.
    17. Ackerberg, Daniel A. & DeRemer, David R. & Riordan, Michael H. & Rosston, Gregory L. & Wimmer, Bradley S., 2014. "Estimating the impact of low-income universal service programs," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 84-98.
    18. Dementiev, Andrei & Han, Hyen Jin, 2020. "A theory of deregulation in public transport," Research in Transportation Economics, Elsevier, vol. 83(C).
    19. Antonio Estache & Caroline Philippe, 2012. "The Impact of Private Participation in Infrastructure in Developing Countries: Taking Stock of about 20 Years of Experience," Working Papers ECARES ECARES 2012-043, ULB -- Universite Libre de Bruxelles.
    20. Geoffrey Barrows & Helene Ollivier, 2016. "Emission intensity and firm dynamics: reallocation, product mix, and technology in India," GRI Working Papers 245, Grantham Research Institute on Climate Change and the Environment.
    21. Jens Matthias Arnold & Beata Javorcik & Molly Lipscomb & Aaditya Mattoo, 2016. "Services Reform and Manufacturing Performance: Evidence from India," Economic Journal, Royal Economic Society, vol. 126(590), pages 1-39, February.

    More about this item

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:21763. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.