| Summary: | This dissertation investigates the causes and effects of the decentralization of environmental regulation.
In Chapter 1, I provide an historical overview of air pollution regulation in the U.S., which serves as the context for this dissertation.
Chapter 2 develops a model of interjurisdictional environmental regulation where economic and pollution spillovers may arise. I show that these spillovers may cause local jurisdictions to seek decentralized regulatory control, which in turn generates inefficient outcomes.
Chapter 3 investigates empirically whether the decentralization of air pollution regulation in the U.S. during 1971-1990 caused an increase in transboundary air pollution. I find that the transfer of regulatory authority from the federal government to an individual state generated a significant increase in air pollution observed at monitors in downwind states. These findings vary with distance to those states creating transboundary spillovers and across pollutants with different atmospheric lifetimes. This is consistent with the notion that local governments do not account for externalities that their policies generate.
The final chapter estimates a model of interjurisdictional environmental regulation that allows for transboundary pollution and competition for firms. The interdependence in jurisdictions’ regulatory choices from the spillovers creates a challenging identification problem, which I address using exclusion restrictions derived from the atmospheric physics of pollution propagation. For total suspended particulates, transboundary pollution will typically occur only between contiguous neighbours in the direction of the wind. This implies that exogenous factors affecting pollution dispersion (such as wind velocity) in distant jurisdictions can serve as instruments for neighbours' endogenous policy choices: they do not affect a given jurisdiction's regulatory choice directly, but directly affect the choices of that jurisdiction's neighbours. I find that a shift from centralized to state regulatory control causes significant increases in the number of polluting firms that locate in that state and decreases elsewhere; the same shift increases ambient air pollution at home and in other states. I also find that state regulatory choices respond much more to changes in the number of firms than to pollution. Further, I show that the degree of decentralization and the observed pollution outcomes are far from the counterfactual efficient levels.
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