Working Paper: CEPR ID: DP12584
Authors: Christopher Hansman; Jonas Hjort; Gianmarco Leon
Abstract: Industrial regulations are typically designed with a particular policy objective and set of fi rms in mind. When input-output linkages connect fi rms across sectors, such "piecemeal" regulations may worsen externalities elsewhere in the economy. Using daily administrative and survey data, we show that in Peru's industrial fishing sector, the world's largest, air pollution from downstream ( fishmeal) manufacturing plants caused 55,000 additional respiratory hospital admissions per year as a consequence of the introduction of individual property rights (over fish) upstream. The upstream regulatory change removed suppliers' incentive to "race" for the resource and enabled market share to move from inefficient to efficient downstream fi rms. As a result, the reform spread downstream production out across time, as predicted by a conceptual framework of vertically connected sectors. We show evidence consistent with the hypothesis that longer periods of moderate air polluting production can beworse for health than concentrating a similar amount of production in shorter periods. Our fi ndings demonstrate the risks of piecemeal regulatory design in interlinked economies.
Keywords: industrial regulations; coasian solutions; air pollution; externalities; firm interlinkages; health; second best
JEL Codes: D2; L5; O1; I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2009 reform (E69) | respiratory hospital admissions (I19) |
| introduction of individual property rights (P14) | respiratory hospital admissions (I19) |
| introduction of individual property rights (P14) | health issues for children (I10) |
| shift in the time profile of production (E23) | respiratory hospital admissions (I19) |
| temporal distribution of pollution (Q53) | health outcomes (I14) |
| geographic heterogeneity in reform's impact (C21) | variations in health impacts (I12) |