Working Papers
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.
Publications
Does Pollution Prevention Enhance Firm Efficiency? Insights from U.S. Manufacturing Firms (with Subal Kumbhakar and Yingjun Su) (International Journal of Industrial Organization, June 2026)
DOI: https://doi.org/10.1016/j.ijindorg.2026.103305Presentations: North American Productivity Workshop, June 2025.* Ulvön Conference on Environmental Economics, June 2025.
*represents presentation by a 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)
Electricity Reform and Changes in Firm Performance in India (with Wenya Wang & Subal Kumbhakar)