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Motivating emissions cleanup: Absolute vs. relative performance standards

Jamie T. Mullins

Journal of Environmental Economics and Management, 2018, vol. 91, issue C, 66-92

Abstract: This article empirically compares the effectiveness of relative versus absolute performance standards in motivating compliance actions. By leveraging a unique set of Chilean administrative panel data, I examine a natural experiment created by a change in the performance standard used to incentivize the reduction of particulate matter in the atmospheric emissions of stationary pollution sources in the Santiago Metropolitan Region. I find that the absolute standard drove ∼21% less emissions cleanup than did the relative standard. I also demonstrate how sharp heterogeneity in responses to the change in standards is predictable based on an ex-ante identifiable type-categorization, which leads to the broadly-applicable conclusion that stricter regimes drive more compliance actions when imposed via an absolute performance standard compared to a relative standard. The extension of this framework provides a general means of anticipating whether an absolute or relative performance standard will drive higher rates of compliance actions in other settings.

Keywords: Absolute standard; Relative standard; Air pollution; Air quality policy; Regulatory uncertainty; Environmental regulation; Chile; Criterion-referenced standard; Norm-referenced standard (search for similar items in EconPapers)
JEL-codes: D47 D81 H41 Q52 Q53 (search for similar items in EconPapers)
Date: 2018
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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