Sunday, February 19, 2006

Environmental Disasters as Regulation Catalysts?

I wonder if I'm the only blogger who sometimes runs low on ideas worth posting? To fill this void, here I post the introduction of a new working paper of mine. For a low price, you will soon be able to download: "Environmental Disasters as Regulation Catalysts? The Role of Bhopal, Chernobyl, Exxon-Valdez, Love Canal, and 3 Mile Island in Shaping U.S. Environmental Law".


Unexpected events such as environmental catastrophes capture wide public attention. Soon after such shocks, new regulation is often enacted. For example, the famous 1969 fire on Cuyahoga River in Cleveland began when sparks from a train ignited debris that was floating in a slick of oil and chemicals. Three years after this fire, the Clean Water Act was passed.

Do such events cause new regulation? Such environmental shocks often have a catalytic effect of generating massive media coverage that galvanizes the public. Kuran and Sunstein (1999) provide a compelling case study of the media “snowball” surrounding toxic waste dumped at Love Canal.

“A kind of cascade effect occurred, and hence in the period between August and October, 1978, the national news was saturated with stories of the risks to citizens near Love Canal. The publicity continued in 1979 and 1980, the crucial years for Superfund’s enactment. There can be no doubt that the Love Canal publicity was pivotal to the law’s passage in 1980. In that year, Time magazine made the topic a cover story, and network documentaries followed suit. Polls showed that eighty percent of Americans favored prompt federal action to identify and clean up potentially hazardous abandoned waste sites. Congress responded quickly with the new statute (Kuran and Sunstein 1999).”

This paper seeks to test this catalyst hypothesis with a focus on environmental shocks. I first document that five major environmental shocks, 3 Mile Island, Chernobyl, Bhopal, Love Canal and the Exxon Valdez oil spill, received extensive media attention after the events took place. I then examine how such media attention might affect the pressure group competition between interest groups (Olson 1965). I argue that salient events can mitigate the free rider problem among diffused consumer groups by galvanizing this group. Environmental shocks may shift the “balance of power” encouraging environmental interest groups and their Congressional Representatives to push for more aggressive environmental regulation.

Using a panel data set on Representative voting on 371 major environmental bills over the years 1973 to 2002, this paper examines Congressional Representatives’ voting patterns on environmental legislation before and after these five catalytic events. This paper’s empirical contribution is to conduct an event study to see whether individual Representatives are “shocked” by environmental disasters to increase their probability of voting the pro-environment position on environmental legislation. The fundamental empirical challenge is to construct credible counter-factuals. How would Congress have voted had the five disasters not taken place? What legislation would have been voted on?

My empirical approach relies on the panel nature of my data set. I observe the same Representatives’ voting patterns in years when disasters did and did not occur and voting on issues directly related and unrelated to these disasters.
I report evidence that representatives are less likely to vote the pro-environment position on legislation tied to catalytic events. I argue that this counter-intuitive finding is generated by selection in the bill generation process. In the aftermath of catalytic events, environmental interest groups pursue more ambitious legislation because they sense that the public cares about this issue.
I document a significant degree of heterogeneity with respect to the catalytic voting effect. Three Mile Island, Love Canal and Bhopal are events where I find evidence of a positive catalytic effect on pro-environment voting propensities for many different types of Representatives. I also document significant voting heterogeneity with respect to observable attributes of Representatives. Liberal Northeastern Democrats who receive a small share of campaign corporations from corporations are the most likely to increase their propensity to vote pro-green in the aftermath of these environmental disasters. Republicans sharply reduce their pro-environment support. Thus, these events appear to polarize rather than unify the Congress in its formation of environmental law.

This paper builds on the environmental literature that has examined the determinants and timing of when new regulations are adopted. Typically, environmental economists have focused on per-capita income as a key force (Seldon and Song 1995, Grossman and Krueger 1995, Dasgputa et. al 2001). This paper also contributes to the recent literature on the role played by the media in determining economic outcomes (Gentzkow and Shapiro 2006, Hamilton 2004, DellaVigna and Kaplan 2005, Eisensee and Stromberg 2005, Mullainathan and Shleifer 2005).