Environmental Free Riding in State Water Pollution Enforcement

Abstract

AbstractInterjurisdictional pollution spillovers are a critical issue in U.S. environmental policy. When policy responsibility is decentralized, state governmental agencies have incentives to promote these externalities in order to capture the benefits of economic activity within their borders while compelling neighbors to shoulder the resultant environmental costs. To test this free riding hypothesis, prior studies have relied on crude proxies to delineate a regulated entity's proximity to a neighboring state. In this article, we develop a more refined set of measures using newly available data on facility location to isolate the conditions under which free riding is theoretically more likely to occur. We then assess state enforcement of the federal Clean Water Act directed at major water polluters under these conditions to determine the extent to which U.S. states engage in environmental free riding behavior. Our empirical results are mixed, but in general they fail to support theoretical expectations generated by the free rider argument.