Impact of Environmental Regulation on Technical Efficiency A Study of Chemical Industry in and around Mumbai

• Published in: Science, technology & society (New Delhi, India) Vol. 16; no. 3; pp. 333 - 350
• Main Authors: Dutta, Nivedita, Narayanan, K.
• Format: Journal Article
• Language: English
• Published: New Delhi, India SAGE Publications 01.11.2011; SAGE PUBLICATIONS, INC
• Subjects: Chemical industry; Distance functions; Environmental protection; Hypotheses; Mumbai; Panel data; Pollution; Pollution control; Porter hypothesis; Regulation; Stochastic models; Technical efficiency; Water pollution; Water supply; Mumbai India; India; India, Maharashtra, Greater Mumbai Dist., Mumbai; chemical industry; Technical efficiency; JEL Classification: Q53; porter hypothesis; JEL Classification: L60; distance functions; environmental regulation
• ISSN: 0971-7218; 0973-0796
• DOI: 10.1177/097172181101600305

There is a large concentration of chemical firms around Mumbai, and the Maharashtra Pollution Control Board has been actively monitoring them. Such monitoring is likely to have an impact on the productive efficiency of these firms. The firms argue that additional costs to minimise environmental damage have reduced their efficiency. We try to find out whether these water-polluting firms in the chemical industry around Mumbai are actually unable to cope with the additional cost of pollution abatement, or whether by using cleaner practices, are able to improve their efficiency, and support the ‘win-win’ opportunities as claimed by the Porter Hypothesis. The study is carried out by estimating an Output Distance Function using a stochastic production function. The panel data of fifty water-polluting small-to medium-scale firms for three-year period of 2004–06 was collected in a primary survey of chemical industries around Mumbai. We find that the polluting firms are technically more efficient than those firms which adhere to pollution norms. Thus, the Porter Hypothesis does not hold for the sample.