How effective is green regulatory threat?

摘要

Governments use "green" regulatory threat as an instrument to induce "voluntary" pollution abatement by firms. If threats suffice to induce adequate reductions in emissions, they may save considerable implementation and monitoring costs. However, green regulatory threat can only induce emission reductions when firms find the threat credible and do not free-ride on other firms' abatement effort. The effect of regulatory threat can be backed out from the data by conditioning abatement effort on firm characteristics. Theory suggests a measure of environmental exposure that combines (i) a firm's composition and toxicity of emissions, (ii) its size and pollution intensity, and (iii) its location which determines the size of the population at risk. Furthermore, firms' abatement effort is conditioned on whether they meet participation and incentive constraints determined by their unabated pollution intensity and unit abatement cost. Then firms' position relative to other firms (i.e., their rung on the abatement ladder) determines their participation in abatement activity.