Why do Firms Pollute (and Reduce) Toxic Emissions?

Abstract:     
There is a growing trend in both the U.S. and abroad for firms to reduce emission levels beyond the legally required mandate. One of the most publicized examples of this phenomenon in the U.S. is the release of toxic chemicals. These emissions have come under increasing scrutiny since passage of the "Right-to-Know" law mandating the public availability of toxic release inventory (TRI) information beginning in 1989. In response to this new information, some firms have dramatically reduced toxic chemical emissions. This paper explores the factors that both explain differences across firms in their initial toxic emission levels and in the reductions beyond any legally required levels subsequent to the availability of public information on TRI. The underlying theory is that firm-level pollution varies because of firm-specific factors that affect both the "ability" and "incentive" for firms to reduce pollution. In comparing emission levels between 1989 and 1992, we find that the largest firms are most likely to reduce emissions subsequent to this new information being made public. We also find that financial ability plays an important role in emission levels. On the other hand, we were unable to find any evidence that firms who advertise more heavily to consumers or had significant negative media attention concerning their emission levels reduced their emissions more than average after controlling for firm size.

Keywords: pollution, voluntary regulation, toxic emissions

JEL Classifications: D62, H41, Q58

Working Paper Series