Working Paper: CEPR ID: DP16293
Authors: Pamela Campa; Lucija Muehlenbachs
Abstract: Cash penalties in US environmental court cases can be mitigated if a defendant volunteers to undertake an in-kind project in the location of their violation, for example, by creating an education program or building a public park. A stated goal of the policy is to address environmental justice concerns for low-income and minority populations. However, the historical record shows in-kind settlements most likely occur in the cases involving high-income, majority-white communities. The welfare implications of this inequality are not straightforward. We find evidence that punishment in kind is more lenient than in cash: firms volunteering in-kind projects receive positive reactions by the public and the stock market. More leniency could have implications for future environmental violations. Taking intertemporal environmental quality into account, we estimate a dynamic social welfare function and find that in-kind settlements are nonetheless beneficial. Counterfactuals with a representative social planner would result in more in-kind settlements than under the current institutional setup.
Keywords: Environmental Justice; Environmental Enforcement; Corporate Penalties; Deterrence; Social Welfare Weights
JEL Codes: Q58; H23; D63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| community characteristics (R23) | likelihood of receiving inkind settlements (G33) |
| type of settlement (inkind vs cash) (F35) | public perception (E66) |
| type of settlement (inkind vs cash) (F35) | stock market reactions (G10) |
| public perception (E66) | firm reputation (L14) |
| type of settlement (inkind vs cash) (F35) | future environmental outcomes (Q56) |
| inkind settlements (J46) | environmental improvements (Q56) |