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Formation and political consequence of environmental enforcement policy : evidence from the US industries Sun, Meng


This thesis investigates the determinants and political consequences of environmental enforcement policy. Three related issues are addressed using the U.S. manufacturing data at the industry level. In Chapter Two, I estimate the elasticity of the violation rate with respect to the inspection rate for the manufacturing industries. This elasticity reflects the power of monitoring to alter an industry's violation status. I conduct an estimation of the relationship between the violation rate and the inspection rate at the industry level, but the specification is based on an individual firm's dichotomous choice in a logit model. The inspection rate is instrumented with the average of the inspection rates across the other industries that belong to the same sector to deal with the endogeneity problem. I find a substantial variation in the elasticity of the violation rate across industries. Chapter Three addresses how the inspection rate is determined by the elasticity of the violation rate when the enforcement agency is constrained with a hard monitoring budget. Given the limited monitoring resources, an enforcement agency targets industries where inspections are more likely to be effective in reducing violations to reduce inefficiency, all else equal. Empirical results confirm the positive effect from the absolute elasticity on the inspection rate. But the magnitude of this effect is conditional on the pollutants' damage level to the environment. In Chapter Four, I focus on the political consequence of the enforcement policy. I employ the campaign contribution presented to the Congress exclusively for environmental issues (EPC) to measure the environmental political activity. The variation of EPC across industries is explained by the enforcement policy stringency. Although the EPC presented to the Congress is targeted directly on environmental regulation rather than the enforcement policy, a stricter enforcement policy increases the marginal benefit from contributing the congress for relaxing the regulation. Empirically, I use the elasticity of the violation rate to isolate the effect of the enforcement policy on EPC. An industry with a larger elasticity of the violation rate is more likely to face a higher inspection rate, it therefore is more likely to engage in the political activity.

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