The Value of Regulatory Discretion: Estimates from Environmental Inspections in India

90 Pages Posted: 11 Oct 2014 Last revised: 2 Feb 2018

See all articles by Esther Duflo

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics; Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Michael Greenstone

University of Chicago - Department of Economics; Becker Friedman Institute for Economics; National Bureau of Economic Research (NBER)

Rohini Pande

Harvard University - Harvard Kennedy School (HKS)

Nicholas Ryan

Harvard University; Abdul Latif Jameel Poverty Action Lab Global

Multiple version iconThere are 2 versions of this paper

Date Written: February 2018

Abstract

Many developing countries have high pollution despite strict environmental standards, suggesting gaps in regulatory enforcement. In collaboration with the Gujarat Pollution Control Board (GPCB), in India, we increased the rate of inspection for a random group of polluting industrial plants and required the added inspections be assigned randomly. Plants in the treatment group were twice as likely to be inspected and to be cited for violations. Yet, treatment plants were no more likely to be penalized and only slightly increased environmental compliance. We show that the weak treatment effects are not due to a lack of sanctions: penalties are often applied for extreme violators. The regulator also follows-up on control and treatment inspections in the same way. We hypothesize that the results are due to the randomized inspections being less well targeted than inspections in the status quo. To investigate, we set out a structural model of environmental regulation where the regulator targets inspections, based on a signal of pollution, to maximize plant abatement. Using the experimental variation in inspections to identify key parameters, we find that the regulator aggressively targets its discretionary inspections at plants it believes are most polluting. As a result the average regulator-chosen inspection induces three times more abatement than an inspection added at random. Counterfactual simulations show that monitoring technology that improved regulatory information about emissions would greatly increase abatement.

Keywords: environmental policy, India, pollution

JEL Classification: K32, L38

Suggested Citation

Duflo, Esther and Greenstone, Michael and Pande, Rohini and Ryan, Nicholas, The Value of Regulatory Discretion: Estimates from Environmental Inspections in India (February 2018). Becker Friedman Institute for Research in Economics Working Paper No. 2014-07. Available at SSRN: https://ssrn.com/abstract=2508049 or http://dx.doi.org/10.2139/ssrn.2508049

Esther Duflo (Contact Author)

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Michael Greenstone

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National Bureau of Economic Research (NBER)

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Rohini Pande

Harvard University - Harvard Kennedy School (HKS) ( email )

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Nicholas Ryan

Harvard University

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