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Political ‘Colour’ and Firm Behaviour: Evidence from U.S. Power Plants’ Pollution Abatement

Author

Listed:
  • Corrado Di Maria

    (University of East Anglia)

  • Emiliya Lazarova

    (University of East Anglia)

  • Lan Lange

    (Colorado School of Mines)

Abstract

We ask whether firms behave differently depending on the political party in charge, above and beyond responding to any actual differences in policy. We use the pollution abatement behaviour of U.S. Steam Electric Power Plants under the Clean Water Act as our case study. Exploiting the variation provided by the outcome of tightly contested gubernatorial elections, we provide causal evidence that large firms respond to the political ‘colour’ of the governor in the state they operate, even when neither the stringency nor the enforcement of the rules depend on it. Within a theoretical model of the interaction between the regulator and the regulated firms, we show that multiple equilibria arise, and the outcomes of the election provide an effective coordination device. This unexpected behaviour has real-world consequences and leads to significant differences in pollution levels.

Suggested Citation

  • Corrado Di Maria & Emiliya Lazarova & Lan Lange, 2024. "Political ‘Colour’ and Firm Behaviour: Evidence from U.S. Power Plants’ Pollution Abatement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(5), pages 1141-1174, May.
    • Handle: RePEc:kap:enreec:v:87:y:2024:i:5:d:10.1007_s10640-024-00859-w
    DOI: 10.1007/s10640-024-00859-w
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    More about this item

    Keywords

    Regression discontinuity; Environmental policy; Pollution abatement; Political economy; Enforcement; Power plants; Water pollution;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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