Dietrich Earnhart

Combining Revealed and Stated Preference Methods to Value Environmental Amenities at Residential Locations

This paper combines an established revealed-preference method, discrete-choice hedonic analysis, and a relatively new stated-reference method, choice-based conjoint analysis, in order to estimate more accurately the aesthetic benefits generated by the presence and quality of environmental amenities associated with residential locations. It applies the combined approach to the housing market of Fairfield, Connecticut, which contains several environmental amenities and is experiencing an improvement in the quality of its coastal wetlands due to active restoration efforts. (JEL Q26)

The Effects of Community Characteristics on Polluter Compliance Levels

This paper analyzes the effects of community characteristics on compliance levels—emissions relative to effluent limits—at polluting facilities. In particular, it examines both direct effects and indirect effects; the second type of effects represents the linking of two related effects: (1) effects of community characteristics on regulatory decisions to intervene against specific facilities with inspections and penalties; and (2) effects of regulatory interventions on facility compliance levels. Estimation reveals (1) community characteristics significantly affect both regulatory interventions and facility performance; (2) direct effects and indirect effects are generally comparable in magnitude; and (3) total effects are economically meaningful. (JEL Q25)

Panel Data Analysis of Regulatory Factors Shaping Environmental Performance

This paper analyzes the regulatory factors shaping environmental performance at individual polluting facilities. In particular, it examines the influence of actual government interventions, namely, inspections and enforcement actions performed at specific facilities. This influence represents specific deterrence. This paper also examines general deterrence, that is, the threat of receiving an intervention. As important, it controls for differences in certain regulatory features of facility-specific pollution control permits. Unlike previous attempts to examine regulatory factors, this analysis uses panel data techniques to capture the heterogeneity across individual facilities, while exploring the dynamics of each facility; the analysis also captures heterogeneity across individual time periods.

Enforcement of Environmental Protection Laws under Communism and Democracy

Lax enforcement of environmental protection laws in the formerly communist countries of Eastern and Central Europe is offered as one contributing factor to the large‐scale environmental degradation that these countries have experienced. This article empirically examines enforcement responses to water‐damaging “accidents” (for example, an oil spill) in the Czech Republic for the year 1988–92, a time period that spans both the communist political regime and the democratic political regime. In particular, it focuses on ex post penalties: required remediation (for example, cleanup after an oil spill) and monetary fines. Empirical analysis reveals the factors driving enforcement strategies in each political period and contrasts their influence under the two regimes. In particular, it identifies the operative liability rules guiding remediation and monetary fine decisions.

Using Contingent-Pricing Analysis to Value Open Space and Its Duration at Residential Locations

To estimate benefits from open space adjacent to residences, this paper blends contingent valuation and conjoint analysis within a housing market context. The resulting framework — “contingent-pricing analysis,” — represents the stated preference counterpart to hedonic-pricing analysis by asking individuals to state prices for hypothetical housing locations, which include an environmental amenity. Then, it asks individuals to state their willingness to pay for a better and longer lasting environmental amenity. As an advantage over hedonic-pricing analysis, it directly isolates willingness to pay. Results indicate that potentially short-lasting open space adds no value, while preserved open space adds

The Effect of Clean Water Regulation on Profitability: Testing the Porter Hypothesis

5,066 or 5% to housing value. (JEL R14, Q24)

Corporate Environmental Strategies in Emerging Economies

Previous theoretical research provides opposing arguments regarding the effect of environmental regulation on profitability. This study provides empirical evidence on this debated effect by testing the “strong” version of the Porter hypothesis. We employ panel data analysis to examine the effect of water regulation, as measured by permitted wastewater discharge limits, on the profitability of publicly held firms operating within the chemical manufacturing industries. We find that tighter water regulation meaningfully lowers profitability. By reinterpreting profitability in terms of sales and costs, the results demonstrate that tighter water regulation increases costs conditioned on a given level of sales. (JEL K23, Q52)

Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence from a Transition Economy

Many companies are adopting environmentally friendly management practices in developed countries. However, the benefits of a corporate environmental strategy are less clear in emerging (developing and transition) economies, where environmental regulations may be poorly enforced and social pressures to comply are weak. Thus it is important for business leaders, policymakers, and environmental activists to understand the causes and consequences of corporate environmental strategy in these economies so that they are able to implement effective strategies, develop useful policies, and promote meaningful activities, respectively. Drawing on both the theoretical and empirical literature, this article examines a broad array of drivers behind corporate environmental strategies including internal characteristics of firms, market pressures, and pressures from government and civil society. The empirical findings for developing economies (i.e., those whose physical and human resources, along with institutions, are still developing) suggest that government and civil society provide weak incentives for corporate environmental compliance, foreign ownership and foreign customer pressure improve environmental management practices, and information disclosure programs offer some promise for improving corporate environmental performance. The empirical findings for transition economies (i.e., those transitioning from reliance on the government’s allocation of resources to market-based allocations) also suggest a positive, albeit weaker, role for foreign ownership and foreign customer pressure in improving firms’ environmental performance. However, the findings also indicate that government policies, such as stricter enforcement, granting of permits, and higher rates for emission charges, are more effective in transition economies than in developing economies. (JEL: D21, D22, K32, M14, O13, P28, P31, Q53, Q56)

Liability for Past Environmental Contamination and Privatization

This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.

Economic linkages to changing landscapes.

This paper examines the role ofliability for past environmental contaminationin the privatization processes of Central andEastern Europe. In particular, it establishes alink between a risk-averse investors amount ofinformation regarding the extent of pastenvironmental contamination (and its cleanupcosts) and the investors willingness to payfor a particular enterprise, i.e., bid. As theinvestor obtains a more precise estimate of theuncertain cleanup costs, the investor facesless risk; therefore, the investors riskpremium falls and the investors bid rises.This link generates four hypotheses regarding aprivatization agencys responses to theinvestors knowledge of clean-up costs.