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

Corrado Di Maria, Emiliya Lazarova and Lan Lange ()
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Lan Lange: Colorado School of Mines

Environmental & Resource Economics, 2024, vol. 87, issue 5, No 4, 1174 pages

Abstract: 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.

Keywords: Regression discontinuity; Environmental policy; Pollution abatement; Political economy; Enforcement; Power plants; Water pollution (search for similar items in EconPapers)
JEL-codes: H32 H76 Q25 Q53 Q58 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10640-024-00859-w

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