Discussion Paper

Voluntary Environmental Regulation in Developing Countries: Mexico's Clean Industry Program

Aug 25, 2010 | Allen Blackman, Bidisha Lahiri, William A. Pizer, Marisol Rivera Planter, Carlos Muñoz Piña

Abstract

Because conventional command-and-control environmental regulation often performs poorly in developing countries, policymakers are increasingly experimenting with alternatives, including state-sponsored voluntary regulatory programs that provide incentives, but not mandates, for pollution control. Although the literature on this trend is quite thin, research in industrialized countries suggests that voluntary programs are sometimes ineffective because they mainly attract relatively clean participants seeking to free-ride on unrelated pollution control investments. We use plant-level data on more than 60,000 facilities to identify the drivers of participation in the Clean Industry Program, Mexico’s flagship voluntary regulatory initiative. Our results suggest that the threat of regulatory sanctions drives participation in the program. Therefore, the program does appear to attract relatively dirty firms. We also find that plants that sold their goods in overseas markets and to government suppliers, used imported inputs, were relatively large, and were in certain sectors and states were more likely to participate in the program, all other things equal.