Informal Regulation of Industrial Pollution in Developing Countries: Evidence from Indonesia

Abstract

When formal regulation is weak or absent, communities often use other channels to induce pollution abatement by local factories in a process of "informal regulation." The resulting "pollution equilibrium" reflects the relative bargaining power of the community and the plant. This note uses Indonesian data from 1989-90 on plant-level organic water pollution to test the informal regulation hypothesis.

JEL Classification: Q25, Q20, O13