The Political Economy of Environmental Protection
Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)
- Chair: Antonio M. Bento, University of Southern California
The Salience of Environmental Externalities in Generalist and Specialist Elections: Evidence from Fracking
AbstractIn principle, the regulation of externalities in a democracy is subject to electoral discipline. In practice, little is known about the degree to which limited attention and other frictions limit political accountability for environmental policies. This study considers this question through the lens of energy regulation in Oklahoma and Texas, two states that select their oil and gas regulators via popular ballot. This setting allows me to observe voter and candidate behavior both in generalist races and in a narrow race that unbundles energy regulation from other issues. I consider the effects of a new externality: earthquakes caused by disposal of oil and gas drilling waste. High levels of earthquake exposure reduced ballot rolloff and incumbent party vote share in the energy regulator race. The same exposures had no measurable effect on the governor race. Text mining of campaign news coverage similarly shows that induced seismicity was a central campaign issue in the race for energy regulator, but was almost absent from the gubernatorial campaigns. These results are consistent with environmental policy being a relatively low-salience issue in the Besley and Coate (2003) model of attention-limited voters. Moreover, given the large amenity costs of induced seismicity, the persuasive effects of earthquake exposure were strikingly small even in the specialized energy regulator race. This may reflect partisan polarization: precinct vote shares for energy regulator candidates are almost entirely predicted by outcomes for other candidates of the same party. Overall, these results suggest that electoral accountability for environmental policy may be limited both by competition for attention from more salient issues and by the powerful role of partisan cues.
The Environmental and Economic Consequences of Internalizing Border Spillovers
AbstractThis paper studies how centralized decision-making can help local governments internalize regional environmental spillovers, and investigates the associated economic and welfare consequences. Utilizing novel firm-level geocoded emission and production panel datasets, and exploiting more than 3000 cases of township mergers in China, we find that as township mergers eliminate the borders between neighboring townships, the negative externalities of polluting firms located on these borders are suddenly internalized by the new jurisdiction. As a result, these firms spend more effort on emission abatement, which leads to lower emissions, as well as lower output and profit levels. Further analysis suggests that household welfare improves with the internalization of border spillovers, as reflected by increased residential land price around the merging borders.
The Economic Cost of Populism in Developing Countries: Evidence from ‘gas price holidays’ in Brazil
AbstractPolicymakers, especially in developing countries, often rely on ‘gas price holidays’ as a populist strategy for transferring wealth to the population while also gaining (or retaining) political support. Taking advantage of an unexpected announcement to end such a program in Brazil in 2013, we present some of the first credible empirical estimates of the full costs – gross and external – of gas price holidays in an event-study setting. Brazil provides the ideal setting for such a study, given the control the government has over Petrobras, a semi-public multinational corporation and the largest petroleum company in Brazil. Our central result implies that the continuation of the gas price holiday would have resulted in an overall cost of approximately $6.47 billion. Given baseline fuel consumption and prices, such a continuation would have transferred approximately $3.2 billion to consumers, implying that for every dollar transferred to consumers via lower gasoline prices the distortionary cost of the program was roughly $1. By comparison, it costs about $0.40 to raise $1 with a labor tax in the U.S. This is suggestive that financial markets were quite sensitive to the potential additional financial risks Petrobas faced when securing a lower domestic price (risks due to the volatility of oil prices and exchange rates), increasing the distortionary costs of the program. It also implies that, as a mechanism for transferring wealth to individuals, this is a rather inefficient and costly program.
- Q5 - Environmental Economics
- H1 - Structure and Scope of Government