Minimizing Costs, Maximizing Sustainability

Minimizing Costs, Maximizing Sustainability

Yaniv Grinstein, Yelena Larkin

Series number :

Serial Number: 
702/2020

Date posted :

September 29 2020

Last revised :

March 10 2021
SSRN Share

Keywords

  • product market competition • 
  • Environment • 
  • ESG

Do strong incentives to cut costs lead firms to neglect negative externalities? We find that costcutting incentives can be environmentally friendly. To arrive at this conclusion, we examine uniquely detailed plant-level data of private and public firms in the most polluting industry in the US - electric utilities.

To establish causality, we exploit the staggered passage of restructuring legislation, which opened the market to competition and incentivized utilities to cut costs. Following the restructuring, plants moved to cheaper but less polluting production processes. In addition, competition forces have improved allocation of operation across competing plants, contributing further to pollution reduction.

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Authors

Real name:
Yelena Larkin