Local Environmental Quality and Inter-jurisdictional Spillovers
Abstract: We investigate the classic question of how the provision of a local publicly-provided good--air quality--varies with the degree of decentralization of policymaking. Exploiting exogenous variation in the natural topography of the United States to instrument for the number of local government jurisdictions in a metropolitan area, we show that areas with more jurisdictions have significantly lower air quality, and significantly higher concentrations of the toxic air pollutants most closely associated with cancer and non-cancer health risks. Moreover, we estimate that this increase in pollution lowers housing values by at least 3%. By contrast, local drinking water quality--a publicly-provided good not subject to spillovers--does not vary with the number of jurisdictions. Differences in industrial activity explain much of the difference in air quality; areas with more jurisdictions have significantly higher employment in power generation and distribution, and this difference explains the majority of variation in sulfur dioxide emissions--a major component of air quality. Further, areas with more jurisdictions have higher employment in chemical manufacturing, and this explains the majority of variation in concentrations of toxic air pollutants used heavily in this industry.
