Corporate Environmental Policy and Product Market Competition

Corporate Environmental Policy and Product Market Competition

Yaniv Grinstein, Yelena Larkin

Series number :

Serial Number: 
702/2020

Date posted :

September 29 2020

Last revised :

October 07 2020
SSRN Share

Keywords

  • product market competition • 
  • Environment • 
  • ESG

Does product market competition affect corporate environmental policy? It is commonly believed that firms in competitive environments have stronger incentives to cut costs, which could lead them to neglect negative externalities. However, we find that cost cutting incentives could in fact be environmentally friendly.

To arrive at this conclusion, we use a quasi-natural experiment of the restructuring of the utility industry in the US, which has opened the market to competition. We find that the restructuring has incentivized utilities to move to cheaper, but also less polluting, fossil fuels. Moreover, competition forces have smoothed out inefficient peak-capacity operation across competing plants, also contributing to reduction in pollution.

Authors

Real name:
Yelena Larkin