Heterogeneity in Enforcement Stringency and Environmental Pollution in the U.S

Legislation guiding environmental policy in the US is set largely at the federal level, whereas, the primary monitoring and enforcement responsibility is decentralized to state & local authorities. Consistent with the idea that households' marginal willingness to pay for environmental quality increases with their wealth, I show that enforcement actions under the Clean Air Act correlate positively with median house prices at the county level. I establish causality using an instrumental variable approach. The effect is stronger in counties with higher social capital, and for those that are located in states with democrat governors. Exogenous increases in local housing wealth lead to a decrease in toxic releases from local polluting plants and an increase in local plants’ pollution abatement initiatives. My results highlight that under federalism, environmental enforcement can become fragmented, when households differ in their marginal willingness to pay for environmental quality