Direct and Indirect Effects of Voluntary Certification: Evidence from the Mexican Clean Industry Program

Abstract

We develop and test a model of environmental regulation that integrates firm and regulator behavior to evaluate a voluntary certification program: the Mexican Clean Industry Program. Imposing structure on the costs of participation and compliance we first establish that plants with lower compliance costs are more likely to certify. Then, we show that because authorities seem to use certification as a screening device, the program leads to higher levels and more efficient targeting of inspections. Using remotely sensed estimates of local air quality we find evidence that is consistent with the model and suggests that the Clean Industry Program had little impact on emissions of firms that certified but reduced emissions overall as a result of the regulatory response that certification made possible.