Job Market Paper
Pollution Prevention or Green Innovation? Unraveling Firms' Environmental Choices
Abstract: We study how firms internalize environmental constraints through two distinct channels: (i) pollution prevention, and (ii) longer-term innovation captured by green patents. Linking data from S&P Compustat, the EPA TRI, and supplemental sources from 2001 to 2020, we document systematic sorting into these actions. Firms that undertake pollution prevention are more pollution-intensive and therefore more exposed to regulatory scrutiny, while firms that pursue green patenting are more capital-intensive and cash-rich, and they operate in less concentrated industries. To address endogeneity in firms’ environmental choices, we use shift-share and state-industry peer instruments based on peers’ prevention or patenting activity. We find partial substitution between the two channels: increases in green patenting reduce reliance on pollution prevention. Importantly, pollution prevention primarily delivers environmental improvements, consistent with a compliance margin, while green patenting is linked to emissions reductions, higher markups, lower regulatory exposure, and higher firm valuation, consistent with innovation generating market rewards beyond compliance.
Working Paper
Does Pollution Prevention Enhance Firm Efficiency? Insights from U.S. Manufacturing (with Subal Kumbhakar and Yingjun Su) (R&R at International Journal of Industrial Organization)
Abstract: Pollution prevention is the most preferred option in the waste management hierarchy, as prescribed by the Environmental Protection Agency. In this study, we go beyond the commonly studied impact of source reduction activities on total pollution and examine their effects on both economic and environmental efficiency. Using a by-production model within a stochastic frontier analysis framework, we estimate inefficiency as the distance from the maximal frontier while simultaneously examining its key determinants. Using a sample of U.S. manufacturing firms from 1991 to 2016, we find that a 1% increase in source reduction measures leads to an average output efficiency improvement of 0.49%—equivalent to $25 million increase in real sales—and a 6.05% gain in environmental efficiency, translating to a reduction of about 33,000 pounds of toxic releases on average. We also find heterogeneities in the effectiveness of source reduction activities across industries, driven by differences in production flexibility and technological intensity, and across types of activities, with material substitution and inventory management yielding the most significant efficiency gains, while process modifications and operational training show limited effects. Our findings offer valuable insights into the dual benefits of source reduction measures, highlighting their role in promoting both economic gains and environmental sustainability.
Presentations: North American Productivity Workshop, June 2025.* Ulvön Conference on Environmental Economics, June 2025.
*represents presentation by co-author.
Work in Progress
Role of Preventive and Control Investments in Pollution Management: A Case of Swedish Manufacturing Firms (with Shuyi Wang & Subal Kumbhakar)
Product Market Turnovers in India: Distortions, Creative Destruction, or Consumer Appeal? (with Wenya Wang & Subal Kumbhakar)