Berkeley Program in Law and Economics

The normative literature on decentralization of public goods provision has many testable empirical implications. This paper explores some of these implications by looking at the relationship between decentralization and an environmental public good, water quality in rivers at monitoring stations around the world. It examines pollution levels and interjurisdictional variation in these levels for both a local and a regional pollutant. The results suggest higher pollution levels with greater decentralization when fixed effects are included; the evidence is strongest for the regional pollutant, where it might result from interjurisdictional free riding. Federalism is associated with greater interjurisdictional variation in pollution within a country, consistent with the traditional view that decentralization allows policies more tailored to local conditions.