DP16293 Addressing Environmental Justice through In-Kind Court Settlements

Author(s): Pamela Campa, Lucija Muehlenbachs
Publication Date: June 2021
Keyword(s): corporate penalties, deterrence, environmental enforcement, environmental justice, social welfare weights
JEL(s): D63, H23, Q58
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16293

Cash penalties in US environmental court cases can be mitigated if a defendant volunteers to undertake an in-kind project in the location of their violation, for example, by creating an education program or building a public park. A stated goal of the policy is to address environmental justice concerns for low-income and minority populations. However, the historical record shows in-kind settlements most likely occur in the cases involving high-income, majority-white communities. The welfare implications of this inequality are not straightforward. We find evidence that punishment in kind is more lenient than in cash: firms volunteering in-kind projects receive positive reactions by the public and the stock market. More leniency could have implications for future environmental violations. Taking intertemporal environmental quality into account, we estimate a dynamic social welfare function and find that in-kind settlements are nonetheless beneficial. Counterfactuals with a representative social planner would result in more in-kind settlements than under the current institutional setup.