Publication: Firms' and States' Responses to Laxer Environmental Standards
Loading...
Date
2019-03
ISSN
Published
2019-03
Author(s)
Cordella, Tito
Editor(s)
Abstract
On June 1, 2017, President Trump announced the United States' withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher environmental standards. To understand this apparent paradox, this paper studies how a weakening of environmental standards affects the behavior of profit-maximizing firms. It finds that a relaxation of emission standards (i) may increase firms' incentives to adopt clean technologies, but not to pollute less; (ii) may negatively affect industry profitability if it is perceived as temporary; and, when this is the case, (iii) the unilateral adoption of stricter standards by large states may increase the expected profitability of every firm.
Link to Data Set
Citation
“Cordella, Tito; Devarajan, Shantayanan. 2019. Firms' and States' Responses to Laxer Environmental Standards. Policy Research Working Paper;No. 8781. © World Bank. http://hdl.handle.net/10986/31407 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Geopolitics and the World Trading System(Washington, DC: World Bank, 2024-12-23)Until the beginning of this century, the GATT/WTO system worked. Economic research provided a compelling explanation. It showed that if governments maximize the well-being of their own countries broadly defined, GATT/WTO principles would facilitate mutually beneficial cooperation over their trade policy choices. Now heightened geopolitical rivalry seems to have undermined the WTO. A simple transposition of the previous rationalization suggests that geopolitics and trade cooperation are not compatible. The paper shows that this is only true if rivalry eclipses any consideration of own-country well-being. In all other circumstances, there are gains from trade cooperation even with geopolitics. Furthermore, the WTO’s relevance is in question only if it adheres too rigidly to its existing rules and norms. Through measured adaptation to the geopolitical imperative, the WTO can continue to thrive as a forum for multilateral trade cooperation in the age of geopolitics.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication From Patriarchy to Policy(Washington, DC: World Bank, 2025-05-29)Legal institutions play an important role in shaping gender equality in economic domains, from inheritance to labor markets. But where do gender equal laws come from? Using cross-country data on social norms and legal equality, this paper investigates the socio-cultural roots of gender inequity in the legal system and its implications for female labor force participation. To identify the impact of social norms, the analysis uses an empirical strategy that exploits pre-modern differences in ancestral patriarchal culture as an instrument for present-day gender norms. The findings show that ancestral patriarchal culture is a strong predictor of contemporary norms, and conservative social norms are associated with more gender inequality in the de jure legal framework, the de facto implementation of laws, and the labor market. The paper presents evidence for a political selection mechanism linking norms to laws: countries with more conservative norms elect political leaders who are more hostile to gender equality, who then pass less progressive legislation. The results highlight the cultural roots and political drivers of legalized gender inequality.Publication Global Socio-economic Resilience to Natural Disasters(Washington, DC: World Bank, 2025-05-22)Most disaster risk assessments use damages to physical assets as their central metric, often neglecting distributional impacts and the coping and recovery capacity of affected people. To address this shortcoming, the concepts of well-being losses and socio-economic resilience—the ability to experience asset losses without a decline in well-being—have been proposed. This paper uses microsimulations to produce a global estimate of well-being losses from, and socio-economic resilience to, natural disasters, covering 132 countries. On average, each $1 in disaster-related asset losses results in well-being losses equivalent to a $2 uniform national drop in consumption, with significant variation within and across countries. The poorest income quintile within each country incurs only 9% of national asset losses but accounts for 33% of well-being losses. Compared to high-income countries, low-income countries experience 67% greater well-being losses per dollar of asset losses and require 56% more time to recover. Socio-economic resilience is uncorrelated with exposure or vulnerability to natural hazards. However, a 10 percent increase in GDP per capita is associated with a 0.9 percentage point gain in resilience, but this benefit arises indirectly—such as through higher rate of formal employment, better financial inclusion, and broader social protection coverage—rather than from higher income itself. This paper assess ten policy options and finds that socio-economic and financial interventions (such as insurance and social protection) can effectively complement asset-focused measures (e.g., construction standards) and that interventions targeting low-income populations usually have higher returns in terms of avoided well-being losses per dollar invested.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Barriers to the Implementation of Environmental Policies at the Local Level in China(World Bank Group, Washington, DC, 2014-08)China's national leaders have recently made a priority of changing lanes from a pollution-intensive, growth-at-any-cost model to a resource-efficient and sustainable one. The immense challenges of rapid urbanization are one aspect of the problem. Central-local government relations are another source of challenges, since the central government's green agenda does not always find willing followers at lower levels. This paper identifies barriers to a more comprehensive implementation of environmental policies at the local level in China's urban areas and suggests ways to reduce or remove them. The research focuses particularly on the reasons for the gap between national plans and policy outcomes. Although environmental goals and policies at the national level are quite ambitious and comprehensive, insufficient and inconsistent local level implementation can hold back significant improvements in urban environmental quality. By analyzing local institutional and behavioral obstacles and by highlighting best-practice examples from China and elsewhere, the paper outlines options that can be used at the national and local levels to close the local "environmental implementation gap." The findings emphasize the need to create additional incentives and increase local implementation capacities.Publication Tax Policy to Reduce Carbon Emissions in South Africa(2009-05-01)Noting that South Africa may be one of the few African countries that could contribute to mitigating climate change, the authors explore the impact of a carbon tax relative to alternative energy taxes on economic welfare. Using a disaggregate general-equilibrium model of the South African economy, they capture the structural characteristics of the energy sector, linking a supply mix that is heavily skewed toward coal to energy use by different sectors and hence their carbon content. The authors consider a "pure" carbon tax as well as various proxy taxes such as those on energy or energy-intensive sectors like transport and basic metals, all of which achieve the same level of carbon reduction. In general, the more targeted the tax to carbon emissions, the better the welfare results. If a carbon tax is feasible, it will have the least marginal cost of abatement by a substantial amount when compared to alternative tax instruments. If a carbon tax is not feasible, a sales tax on energy inputs is the next best option. Moreover, labor market distortions such as labor market segmentation or unemployment will likely dominate the welfare and equity implications of a carbon tax for South Africa. This being the case, if South Africa were able to remove some of the distortions in the labor market, the cost of carbon taxation would be negligible. In short, the discussion of carbon taxation in South Africa can focus on considerations other than the economic welfare costs, which are likely to be quite low.Publication Green growth, technology and innovation(2012-01-01)The paper explores existing patterns of green innovation and presents an overview of green innovation policies for developing countries. The key findings from the empirical analysis are: (1) frontier green innovations are concentrated in high-income countries, few in developing countries but growing; (2) the most technologically-sophisticated developing countries are emerging as significant innovators but limited to a few technology fields; (3) there is very little South-South collaboration; (4) there is potential for expanding green production and trade; and (5) there has been little base-of-pyramid green innovation to meet the needs of poor consumers, and it is too early to draw conclusions about its scalability. To promote green innovation, technology and environmental policies work best in tandem, focusing on three complementary areas: (1) to promote frontier innovation, it is advisable to limit local technology-push support to countries with sufficient technological capabilities -- but there is also a need to provide global technology-push support for base-of-pyramid and neglected technologies including through a pool of long-term, stable funds supported by demand-pull mechanisms such as prizes; (2) to promote catch-up innovation, it is essential both to facilitate technology access and to stimulate technology absorption by firms -- with critical roles played by international trade and foreign direct investment, with firm demand spurred by public procurement, regulations and standards; and (3) to develop absorptive capacity, there is a need to strengthen skills and to improve the prevailing business environment for innovation -- to foster increased experimentation, global learning, and talent attraction and retention. There is still considerable progress to be made in ranking green innovation policies as most appropriate for different developing country contexts -- based on more impact evaluation studies of innovation policies targeted at green technologies.Publication The Impact of Environmental Performance Rating and Disclosure : An Empirical Analysis of Perceptions by Polluting Firms’ Managers in China(2010-09-01)Environmental performance rating and disclosure has emerged as a substitute or complement for traditional pollution regulation, especially in developing countries. Using data from China's Green Watch program, this study extends previous research on performance rating and disclosure by considering firms' perceptions of public and market responses to their ratings. The results suggest that the Green Watch has significantly increased market and stakeholder pressures on managers to improve their firms environmental performance. More specifically, controlling for the characteristics of locations, firms, and individual managers, the analysis finds that firms with better ratings perceive positive impacts on market competitiveness, overall market value, and relationships with different stakeholders, while the firms with bad ratings are more likely to perceive deterioration. Among these factors, managers perceive a more active role for markets than for stakeholder relations.Publication Firms’ Environmental Performance : Does News Matter?(World Bank, Washington, DC, 2006-04)The empirical literature on environmental performance or compliance has followed two strands: one based on the impact of formal regulation as a means of inducing better environmental performance, and another centered on the role of informal regulation which mainly emphasizes the role of communities and capital markets. The authors analyze the impact of environmental news in print media on firms' environmental performance. Using data from a survey of industrial facilities in the Republic of Korea, probit estimation results indicate that the publication of environmental news in print media and the firm's awareness of this publication are important predictors of a firm's environmental performance, more so than environmental laws, regulations, and environmental training. This paper thus reemphasizes the key role of media in influencing firms' environmental performance.
Users also downloaded
Showing related downloaded files
Publication South Asia Development Update, April 2024: Jobs for Resilience(Washington, DC: World Bank, 2024-04-02)South Asia is expected to continue to be the fastest-growing emerging market and developing economy (EMDE) region over the next two years. This is largely thanks to robust growth in India, but growth is also expected to pick up in most other South Asian economies. However, growth in the near-term is more reliant on the public sector than elsewhere, whereas private investment, in particular, continues to be weak. Efforts to rein in elevated debt, borrowing costs, and fiscal deficits may eventually weigh on growth and limit governments' ability to respond to increasingly frequent climate shocks. Yet, the provision of public goods is among the most effective strategies for climate adaptation. This is especially the case for households and farms, which tend to rely on shifting their efforts to non-agricultural jobs. These strategies are less effective forms of climate adaptation, in part because opportunities to move out of agriculture are limited by the region’s below-average employment ratios in the non-agricultural sector and for women. Because employment growth is falling short of working-age population growth, the region fails to fully capitalize on its demographic dividend. Vibrant, competitive firms are key to unlocking the demographic dividend, robust private investment, and workers’ ability to move out of agriculture. A range of policies could spur firm growth, including improved business climates and institutions, the removal of financial sector restrictions, and greater openness to trade and capital flows.Publication Economic Recovery(World Bank, Washington, DC, 2021-04-06)World Bank Group President David Malpass spoke about the world facing major challenges, including COVID, climate change, rising poverty and inequality and growing fragility and violence in many countries. He highlighted vaccines, working closely with Gavi, WHO, and UNICEF, the World Bank has conducted over one hundred capacity assessments, many even more before vaccines were available. The World Bank Group worked to achieve a debt service suspension initiative and increased transparency in debt contracts at developing countries. The World Bank Group is finalizing a new climate change action plan, which includes a big step up in financing, building on their record climate financing over the past two years. He noted big challenges to bring all together to achieve GRID: green, resilient, and inclusive development. Janet Yellen, U.S. Secretary of the Treasury, mentioned focusing on vulnerable people during the pandemic. Kristalina Georgieva, Managing Director of the International Monetary Fund, focused on giving everyone a fair shot during a sustainable recovery. All three commented on the importance of tackling climate change.Publication The Journey Ahead(Washington, DC: World Bank, 2024-10-31)The Journey Ahead: Supporting Successful Migration in Europe and Central Asia provides an in-depth analysis of international migration in Europe and Central Asia (ECA) and the implications for policy making. By identifying challenges and opportunities associated with migration in the region, it aims to inform a more nuanced, evidencebased debate on the costs and benefits of cross-border mobility. Using data-driven insights and new analysis, the report shows that migration has been an engine of prosperity and has helped address some of ECA’s demographic and socioeconomic disparities. Yet, migration’s full economic potential remains untapped. The report identifies multiple barriers keeping migration from achieving its full potential. Crucially, it argues that policies in both origin and destination countries can help maximize the development impacts of migration and effectively manage the economic, social, and political costs. Drawing from a wide range of literature, country experiences, and novel analysis, The Journey Ahead presents actionable policy options to enhance the benefits of migration for destination and origin countries and migrants themselves. Some measures can be taken unilaterally by countries, whereas others require close bilateral or regional coordination. The recommendations are tailored to different types of migration— forced displacement as well as high-skilled and low-skilled economic migration—and from the perspectives of both sending and receiving countries. This report serves as a comprehensive resource for governments, development partners, and other stakeholders throughout Europe and Central Asia, where the richness and diversity of migration experiences provide valuable insights for policy makers in other regions of the world.Publication Media and Messages for Nutrition and Health(World Bank, Washington, DC, 2020-06)The Lao People’s Democratic Republic (Lao PDR) has experienced rapid and significant economic growth over the past decade. However, poor nutritional outcomes remain a concern. Rates of childhood undernutrition are particularly high in remote, rural, and upland areas. Media have the potential to play an important role in shaping health and nutrition–related behaviors and practices as well as in promoting sociocultural and economic development that might contribute to improved nutritional outcomes. This report presents the results of a media audit (MA) that was conducted to inform the development and production of mass media advocacy and communication strategies and materials with a focus on maternal and child health and nutrition that would reach the most people from the poorest communities in northern Lao PDR. Making more people aware of useful information, essential services and products and influencing them to use these effectively is the ultimate goal of mass media campaigns, and the MA measures the potential effectiveness of media efforts to reach this goal. The effectiveness of communication channels to deliver health and nutrition messages to target beneficiaries to ensure maximum reach and uptake can be viewed in terms of preferences, satisfaction, and trust. Overall, the four most accessed media channels for receiving information among communities in the study areas were village announcements, mobile phones, television, and out-of-home (OOH) media. Of the accessed media channels, the top three most preferred channels were village announcements (40 percent), television (26 percent), and mobile phones (19 percent). In terms of trust, village announcements were the most trusted source of information (64 percent), followed by mobile phones (14 percent) and television (11 percent). Hence of all the media channels, village announcements are the most preferred, have the most satisfied users, and are the most trusted source of information in study communities from four provinces in Lao PDR with some of the highest burden of childhood undernutrition.Publication Remarks at the United Nations Biodiversity Conference(World Bank, Washington, DC, 2021-10-12)World Bank Group President David Malpass discussed biodiversity and climate change being closely interlinked, with terrestrial and marine ecosystems serving as critically important carbon sinks. At the same time climate change acts as a direct driver of biodiversity and ecosystem services loss. The World Bank has financed biodiversity conservation around the world, including over 116 million hectares of Marine and Coastal Protected Areas, 10 million hectares of Terrestrial Protected Areas, and over 300 protected habitats, biological buffer zones and reserves. The COVID pandemic, biodiversity loss, climate change are all reminders of how connected we are. The recovery from this pandemic is an opportunity to put in place more effective policies, institutions, and resources to address biodiversity loss.