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

Abstract

We develop a model of environmental regulation that integrates firm and regulator behavior to evaluate a voluntary certification program: the Mexican Clean Industry Program. Imposing some structure on the costs of participation and compliance we establish that plants with lower costs of compliance are the most likely to certify. Moreover, authorities use certification as a screening tool and update their inspection policy, as high certification rates imply lower inspection costs. Empirically, we find that particulate matter (measured from satellite imagery) significantly lowers in areas with non-certified plants in high-certification sectors, but not around certified plants.