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Assessing the Impact of Formal and Informal Regulations on Environmental and Economic Performance of Brazilian Manufacturing Firms

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  • José Féres
  • Arnaud Reynaud

Abstract

This study investigates the impact of formal and informal regulations on environmental and economic performance of Brazilian manufacturing firms. We adopt a dual approach where production technology is represented by a cost function, approximated by a translog form. Pollution is considered as a negative by-product that can be modified trough using either formal regulation (inspections or sanctions) or informal regulation (community pressure). A simultaneous equation model is estimated by three-state least squares on a sample of 404 industrial establishments located in the state of Sao Paulo, Brazil. We show that pollution abatement costs for the Brazilian manufacturing sector are different from zero which suggests that pollution emissions are affected by environmental regulation. We also demonstrate that environmental performance of firms is jointly affected by formal and informal regulation. Lastly, formal regulation is largely influenced by informal regulation and more specifically by community pressure.
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Suggested Citation

  • José Féres & Arnaud Reynaud, 2012. "Assessing the Impact of Formal and Informal Regulations on Environmental and Economic Performance of Brazilian Manufacturing Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(1), pages 65-85, May.
    • Handle: RePEc:kap:enreec:v:52:y:2012:i:1:p:65-85
    DOI: 10.1007/s10640-011-9520-8
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    More about this item

    Keywords

    Environmental regulation; Informal regulation; Firms; Costs; Brazil; Q21; Q25; L5;
    All these keywords.

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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