Large societal costs from air, water pollution and the local biodiversity loss due to industrial activity necessitate low-cost environmental regulation that are effective in reducing pollution. Many low-income countries, however, lack the institutions and state capacity required to implement cost-effective, market-based policies like taxes and emissions trading systems. These constraints push low-income countries into adopting rigid “command and control” (CAC) policies that enforce absolute pollution standards, mandate the use of specific technologies, or ration and even entirely ban certain polluting activities. The researchers plan to study the impact of an extreme form of CAC policy in India, where the Supreme Court banned all mining activity in Goa and Karnataka, two of India’s most mineral rich states. The Court imposed the ban in response to violations of environmental regulations by mining establishments and the corruption that enabled the violations. Such extreme forms of CAC policies are becoming increasing popular policy instruments in India, however there is little evidence on the social and economic cost that they impose. In particular, the researchers will investigate 1) How large and persistent are adjustment costs of environmental regulation in local labour markets where mining activity is concentrated? 2) How does the ban on mining activity propagate downstream through the production network and what is the general equilibrium cost of the policy?
The researchers will provide new evidence on the relationship between CAC environmental regulation and industrial activity using factory-level panel data and spatial variation in economic activity due to the place-based nature of these mining bans. The researchers will construct a new dataset which will link together data from the CMIE Prowess firm-level data for large and medium firms, the Annual Survey of Industries factory-level data for production and input costs, and new administrative data published by the Ministry of Corporate Affairs. They will then devise a framework to assess the partial and general equilibrium impacts of a CAC policy. They will build iteratively from reduced-form evidence with simple statistical assumptions to a structural model of a production network subject to factor market (labour) distortions as well as output market distortions.
This project will be the first reduced form causal estimate of the impact of court-imposed mining bans in India and will also be the first attempt at understanding the general equilibrium consequences of environmental regulation as the impact of such regulation propagates through the production network. Given that almost all environmental regulation in India can be classified as CAC policy, this project will better inform policymakers on the costs and impacts of imposing such policies. As rigid and costly environmental regulation often encourages efforts to avoid compliance and alienate local populations, such understanding of the costs and impacts is of utmost importance for policy and planning.
