Environmental Protection versus Economic Development: A False Trade-Off?

Author(s): Richard C. Feiock and Christopher Stream

Source: Public Administration Review, Vol. 61, No. 3 (May - Jun., 2001), pp. 313-321
Published by: Blackwell Publishing on behalf of the American Society for Public
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RichardC. Feiock
FloridaStateUniversity
Stream
Christopher
of Idaho
University

Protection
Environmental Versus Economic
Development:A False Trade-Off?

Is a trade-offbetweenthe social benefitsof regulationand the economicbenefitsof development

inevitable?We argue thatenvironmental regulationmay detereconomicgrowthin some contexts,
however,in othercontextsthebenefitsof regulationmaybe obtainedwithlittleor no economicloss.
Wedevelopan explanationof theeconomicimpactsof stateenvironmental policybasedon a model
of publicinfluenceon privateresourceallocationdecisions.Inthismodel,we assumeutility-maximiz-
ing firmswillmakeinvestment choicesbased upontheprojectedprofitson theirinvestments and their
willingnessto acceptthe riskassociatedwiththe investments. We assertthatstatepoliciesand ad-
ministrative influence
institutions perceptions of riskby increasingor decreasinguncertaintyover
futureenvironmental policyand influencereturnon investments at particularlocationsby affecting
firm-levelproduction costs.Our confirm
results thatcertainadministrative
arrangements forenviron-
mentalregulationmay enhance,ratherthanimpede,economicdevelopment.

Overcomingtrade-offsbetween the social benefits of state environmentalprotectionand personalincome (Hall

regulationand the economic benefits of developmenthas
never been easy in practice.Tensionsbetween regulatory
and economic developmentpolicy goals at the state and
local level haveattractedattentionto the competitionamong
state and local governmentsto attractbusiness and devel-
opmentalresources.While few would disputethat both a
growingeconomy and a safe andhealthyenvironmentare
desirable,elected leaders and environmentaladministra-
tors are often confrontedwith choices between protecting
their citizens and their environmentthrough regulatory
actions on the one hand,and promotingeconomic growth
and development on the other. Certain scholars (Porter
1990;Templet1995) andpoliticalleaders,includingPresi-
dentClinton,havesuggestedthisis a falsetrade-off(Clinton
and Gore 1992, 99).
Is a trade-offbetween the social benefits of regulation
and the economic benefitsof developmentinevitable?We
arguethatenvironmentalregulationmay deternew invest-
ment in some contextsby increasingproductioncosts, but
that the benefits of regulationmay be obtainedwith little
or no economic loss in other contexts. Recent studies re-
portpositive cross-sectionalcorrelationsbetweenlevels of
1994). Nevertheless,those studies do not provide system-
atic explanationsfor how environmentalpolicy enhances
economic growth,nor do they subjecttheirhypotheses to
rigorousempiricaltests (cf. Hall 1994; Meyer 1992). This
articlebegins to fill this lacunaby describingthe economic
impactsof state environmentalpolicy based on a longitu-
dinalmodel of public influenceon privateresourcealloca-
tion decisions. In this model, we assumethatutility-maxi-
mizing firmswill makeinvestmentchoices based uponthe
projectedprofits on their investments and their willing-
ness to acceptthe risk associatedwith the investments.We
RichardC. Feiockis a professorand Ph.D.programdirectorin theAskew
Schoolof PublicAdministration and Policyat FloridaStateUniversity. His
teachingand researchinterestsincludeurbanpoliticsand administration as
well as environmental,education,and economic-development policy. His
publishedworkhas appearedin the PublicAdministration Review,Ameri-
can Journalof PoliticalScience,Journalof Politics,UrbanAffairsReview,
and otherjournals.Email:rfeiock@garnet.acns.fsu.edu.
Christopher Streamis an assistantprofessorin the Department of Political
Scienceand PublicAffairsResearchat theUniversity of Idaho.Histeaching
and researchinterestsincludestate politicsand policy,local government
healthpolicy,and intergovernmental
administration, relations.Hispublished
workhas appearedin the Journalof PublicAdministration Researchand
Theory, Political Research Quarterly, and other journals. Email:
cstream@uidaho.edu.

Versus
Protection
Environmental Economic
Development: 313
A FalseTrade-Off?
assert that state policy influences perceptionsof risk by
increasingor decreasinguncertaintyover futureenviron-
mentalpolicy and influencesreturnon investmentsat par-
ticularlocations by affecting firm-level productioncosts.
Our preliminarytest of this model confirms that certain
environmentalpolicy designs may enhance, ratherthan
impede, economic development.
EconomicDevelopmentand
Environmental
Policy
The assumptionthat environmentalregulationreduces
economicgrowthhas been increasinglychallenged(Feiock
1998;RingquistandFeiock 1998). Severalstate-levelstud-
ies report positive correlationsamong state rankings on
economic and environmentalindicatorsand conclude that
the statesthatdo the most to protecttheirenvironmentalso
have the strongest economies (Hall 1994; Meyer 1992).
While informative,the studies that have challenged the
trade-off between environmentalprotection and income
growth suffer from a numberof conceptualand method-
ological limitationsand have not advancedan alternative
theoreticalmodel to explain how environmentalpolicies
influence growth. Most of the work in this traditionhas
relied on cross-sectionalratherthan longitudinaldata. It
also has not attemptedto isolate the variousdimensionsor
policy designs of environmentalprograms,and has not
addressedhow the institutionalstructuresand administra-
tive design of environmental programs may influence
growth(Hall 1994; Meyer 1992;Templet1995). Forthese
reasons, extant research does not provide a convincing
challenge to the base of empiricalevidence in economics
andpoliticalscience thatidentifiestrade-offsbetweeneco-
nomic and environmentalvalues in state policy decisions
(Bacot and Dawes 1997; Davis 1992; Davis and Lester
1989; Feiock and Rowland 1991). None of these litera-
tureshas systematicallyexaminedthe effect of stateenvi-
ronmentalprotectionpolicy on economicdevelopmentover
time or addressedthe consequencesof policy instruments
and administrativedesign.
ConceptualFramework
Policy design has capturedincreased attentionin the
policy analysis literature(MacRae 1980; Salamon 1989;
WeimerandVining 1999). Salamon(1989) suggestedthe
need to shift the focus of policy researchaway from pro-
gramsor organizations,andto insteadfocus on the instru-
ments or tools by which public policy goals are accom-
plished. For example, a policy goal such as pollution
reductionmight be pursuedthrougha numberof different
policy mechanisms. In additionto traditionalregulation,
governmentsmight employ taxes or subsidies on produc-
314 Public Review* May/June
Administration 2001,Vol.61, No.3
ers, taxes or subsidiesto consumers,reallocationsof prop-
erty rights, the use of vouchersor tradablepermits,or in-
formation provision.
To identifythe economic developmentconsequencesof
policy design, we startwith a simple model of how state
governments'environmentalprotectionprogramsmay in-
fluence privateresourceallocationdecisions.We posit that
utility-maximizingfirms will make investmentand loca-
tion choices based on anticipatedprofit earned on those
investments. State environmentalregulation has conse-
quences for two factors that shape the anticipatedreturn
from investmentsin new development. First, state envi-
ronmentalregulationaffects the costs of producinggoods
in a state at a particularpoint in time. Second, state envi-
ronmentalregulationinfluences the risk of these invest-
mentsby affectingregulatoryuncertainty.Previousresearch
has focused almostexclusively on the implicationsof state
environmentalpolicy for productioncosts and neglected
its implicationfor the risk or uncertaintyof privateinvest-
ments.
Interstatecompetitionfor economic developmentpro-
vides a context in which marginalchanges in the cost or
risk of developmentinvestmentsthatresult from state en-
vironmentalpolicy may influence privateproductionde-
cisions. Competitionprovides the option of adjustingthe
location,not merelythe level, of investmentin responseto
environmentalactions(Dye 1990). Business locationstud-
ies reveal that after a firm has decided to locate in a par-
ticularregionbased on non-governmentalfactors,govern-
ment policy is an importantconsiderationin the choice
amongstateswithina region(Kale 1984;Wasylenko1980).
This means that states may use environmentalregulations
andincentivesto influencefirms'risksandproductioncosts
and gain an advantageover competitorstates (Feiock and
Rowland 1991).
StateEnvironmental
Policyand
Production
Cost
Research that investigates patternsof state economic
growth and the link between state policies and economic
performancehas flourishedin recentyears.This literature
has focused upon the impactsof investmentinducements,
tax levels, spendingpatterns,and federal transferson pri-
vate productioncosts and economic growth (Brace 1993;
Jones 1990; Steines 1984; Warner1987). Despite the im-
portanceof environmentalregulatorycosts to overallcosts
of production,surprisinglylittle attentionhas been paid to
the effects of these regulatoryrequirementson state eco-
nomic performance.Those studiesthatisolatethe marginal
effect of state incentives and development programson
business conclude that environmentalregulationreduces
state economic growth (Goetz, Ready, and Stone 1996).
Regulationscan restrictland use and often impose sub-
stantialcosts for pollutioncontroland abatement.Several
empiricalstudies documentprivatefirm compliance with
state environmentalregulationthat resulted in increased
productioncosts, and eventually reduced output, higher
prices, and reduced income growth (Christiansen and
Haveman1981; Siegel and Johnson 1993).
State-levelpolicy has come to play a largerrole in shap-
ing stateeconomiesoverthepasttwo decades(Brace1993).
Embeddedwithin the general question of whether state
policy affects the interstatemobility and location of eco-
nomic developmentinvestmentis the more specific ques-
tion of whether regulations affect the intrajurisdictional
allocation of these developmentalinvestments.Evidence
frombothsurveysof executives'plant-sitingdecisions and
econometric studies of economic performance provide
supportfor the position thatstatepolicies, includingregu-
lation, can have significant marginalimpacts on market
resourcesand patternsof economic growthwithin a state
(Feiock 1998).
StateEnvironmental
Policyand
Uncertainty
Much less attentionhas been paid to the anticipated
consequencesof state policy for risks associatedwith de-
velopmentinvestmentacrossstates.Regulatoryuncertainty
createsdisincentivesfor investmentandproduction.Prop-
erty rightstheoryprovidesa powerfulframeworkto iden-
tify how environmentalprogramsaffect the certaintyof
propertyrights and the consequences of uncertaintyfor
development investment and economic growth (North
1981). Fromthis perspective,the institutionalstructureand
administrativedesign of environmentalregulationandpol-
lutioncontrolprogramsmay haveimportantconsequences
for growth.We expect that state economic growthwill be
enhancedas transactioncosts are lessened by administra-
tive arrangementsthat reduce uncertaintyover rights in
property.Foster (1992) contends that effective state eco-
nomic developmentfocuses on the structure,ratherthan
the stringencyof regulation:"The emergingparadigmis
less concernedwith the conventionaldebateover whether
thereis 'too much'or 'too little' regulation,andmore con-
cerned with establishing a frameworkthat will promote
adaptationof the privatesector to more productiveforms
of organizationand activity"(5).
If regulationsare complex, unclear,or subject to fre-
quentandunpredictable changesorrevision,it createsregu-
latory uncertainty.EdwardWeber's (1998) recent work
describedhow environmentalprogramscan be more ef-
fective at achieving economic and environmentalgoals
when governmentprovides a set of rules to manage con-
flict between businessandenvironmentalinterestsand re-
Environmental
duce the uncertaintyand risks associated with collabora-
tion. Environmentalregulationsmodify existing property
rights;therefore,if they change rapidlyor unpredictably,
they createan uncertainenvironmentfor investorsand in-
creasecapitalcosts. On the otherhand,even stringentregu-
latory requirements,if they are clear, stable and certain,
may diminishfirms'investmentrisk (Clingermayer1989).
The likely consequences include increased profitability
because returnson investmentsare more predictableand
the creation of a more level playing field since all firms
mustcomply.This suggests thatstateswith stringentregu-
lationbutstableandcertainpatternsandprocessesof regu-
lationmay have some hope of enjoyinga growingeconomy
as well as the social and environmentalbenefits resulting
from regulation.
This frameworksuggests thatthe organization,institu-
tional structure,and administrativedesign of regulation
programscan have importantpositive or negative conse-
quences for economic growth. Certainforms of state and
local regulationmay facilitate exchange or reduce uncer-
tainty in the regulatoryenvironment.These include the
centralizationof regulatoryfunctions,the coordinationand
streamliningof regulatoryactions, enhancedstate admin-
istrativecapacity,andstrategicplanningandpollutionpre-
vention initiatives.
State EnvironmentalPolicyTools
Unlike previous efforts to examine the effects of state
environmentalpolicy on economic performance,the theo-
reticalframeworkadvancedhere does not treatstate envi-
ronmentalpolicy as unidimensional.Some environmental
policy designs may deter economic growthby increasing
productioncosts while other environmentalpolicy tools
may enhance the performanceof state economies by re-
ducing market uncertaintyand providing a more stable
investmentenvironment.We identify four dimensions of
state environmentalprogramsfor empirical investigation
that may influence the risk and returnof private invest-
ment: state spendingfor environmentalprotection,impo-
sition of regulatorycosts on privatepollution producers,
tax incentives to the private sector for pollution control
activities, and provisionsfor administrativeand decision-
makinginstitutionsthatreduce uncertainty.
State EnvironmentalSpending
State governments'role in environmentalmanagement
has grown dramaticallyas the state role has evolved from
implementerof federal policy to initiatorof environmen-
tal policy (Ringquist1993). In fact, over two-thirdsof en-
vironmentallegislation passed by state legislaturesin the
early 1990s was unrelatedto federalenvironmentallegis-
Versus
Protection
Economic
Development: 315
A FalseTrade-Off?
lation(Brown1994,539). DeWittJohn(1994) has observed lution abatementprovide incentives to reduce pollution
that "virtuallyall states have taken some steps to go be- withoutreducingoutputbecausethey decreasefirms'pro-
yond federallyimposedrequirements,andsome havetaken ductioncosts. In the long run,this createsan incentivefor
the lead in severalareas.... States seem to be more willing new firms to enterthe industry(Brierly 1989).
thanthe federalgovernmentto increasespendingon envi- States also provide a wide arrayof subsidies or incen-
ronmentalprotection"(80). tives to firms for pollution control. Typicallythese are in
State budgets provide supportto a wide arrayof pro- the form of tax relief for investmentin pollution control
grams. Most state expendituresare directedto regulatory technologies (Ringquistand Feiock 1998). A majorityof
enforcement,but some resourcesare directedto activities states provide exemptionsfrom property,sales, or corpo-
that can benefit business by facilitating voluntarypollu- ratetaxesforpollutioncontrolinvestment.Some stateseven
tion reduction and subsidizing pollution prevention and provide tax exemptions for operatingcosts. In addition,
cleanup.In these situations,ratherthanimposing costs on accelerateddepreciationof pollutioncontrolequipmentis
business, state environmentalexpendituressocialize what widely used (Bartik 1980). Advocates of incentive ap-
would otherwise be privatecosts to comply with regula- proaches contend that state and local governments can
tory directives (Feiock and Rowland 1991). In doing so, improvethe efficiency of industrialoperationsand make
state spending not only reduces firms' costs, it may also firms more competitiveby creatingtax incentivesfor new
reducetheirenvironmentalrisksby reducingliability,com- investments(Steines 1984).Alternatively,these incentives
pliance, and disposal responsibility. may encouragefirmsto directtheirnew capitalinvestments
awayfromproductionresourcesandtowardpollutioncon-
trol because non-pollutioncontrol investmentsthatmight
PrivateRegulatoryCosts expandoutputarenot eligible for these incentives(Rhodes
Because state expendituresmay substitutepublic for 1988).
privatepollution abatement,we need to isolate the actual
regulatorycost incurredby firms. Environmentalregula-
tion often imposes substantialcosts on privateactors.State Administrative and Decision-Making
environmentalregulationcompels industrialfirms to ab- Institutions
sorb some or all of the costs of installing pollution abate- The institutionaldesign of stateenvironmentalagencies
mentequipment,disposingof hazardouswaste, andclean- andthe programsthey administerhave directimplications
ing up after industrial accidents. Some commentators for regulatoryuncertaintybecausethey affectprivatetrans-
argue that state environmentalcontrols have gone well action costs, the stabilityof state regulation,and the abil-
beyondfederalmandatesandhave delayedor abortednew ity of states to make credible regulatorycommitmentsto
plant construction(Site Selection Handbook 1981, 378). private actors. Organizationalstructurehas consistently
As an illustration of the magnitude of regulatory costs been linked to state environmentalpolicy choices. Lester
for business: In 1994, U.S. manufacturersreportedover (1989) arguesthatunified,ratherthanfragmented,organi-
$20.6 billion in operatingcosts and $7.8 billion in capi- zational structuresreduce coordinationcosts and ease the
tal expenditures for pollution abatement. In that year, transmissionof information.Lester et al. (1983) have ob-
pollution abatementcapital accounted for over 7 percent served "Consolidationdirectly promotes environmental
of firms' total investment in domestic plants and equip- policy formulationby concentratingboth fiscal resources
ment. In addition to large capital investments,pollution and bureaucraticexpertise into a single agency."A sub-
abatement and control may entail substantial increases stantialnumberof stateshave consolidatedtheirpollution
in operating costs to firms. Increased production costs controlfunctionsin an environmentalsuperagency.These
that result from compliance with environmentalregula- agencies' responsibilitiesextend beyond pollutioncontrol
tion have been reportedto reduce output,increaseprices, to integratepollution programswith resource conserva-
and reduce income growth (Christiansenand Haveman tion or developmentfunctions (Council of State Govern-
1981; Siegel and Johnson 1993). ments 1975). Centralizationmay reduce uncertaintybe-
cause a common set of actors and rules operate across
various programsand organizations.In addition, a super
TaxIncentivesfor PollutionControl agencymay reduceoverlapandprovidegreaterconsistency
Pollutionpreventionand abatementis capitalintensive of signals emanatingfrom regulators.Nevertheless,unity
and may requirefirms to invest in new equipment,on-site andcentralizationmay not alwaysreducetransactioncosts
facilities, or productchanges. As a result, financing be- because not all superagenciesact alike.
comes a deterrentto technologically advancedpollution Similarly,the capacity of state governmentis essential
control measures.Tax breaks,subsidies, or loans for pol- to its ability to make credible commitmentsto business.

316 Public
Administration
Review* May/June
2001,Vol.61, No.3
Attentionto state environmentalregulationhas increased
since the federal governmentinitiated the use of partial
preemptionpolicy designs over two decades ago (Davis
1992). Under partial preemption,once federal agencies
promulgateminimum performancestandards,states are
given the opportunityto assume program management
authority.Once a state programis authorized,the federal
role is limitedto oversightunless the statefalls shortof the
minimal standards.Achievementof programresponsibil-
ity, or primacy,enhancesthe stabilityand certaintyof the
regulatoryenvironmentand the ability of states to make
credible regulatorycommitments. Gaining primacy is a
function of states' institutionalcapacity to absorbdecen-
tralizedprograms(Davis and Lester 1988)
Coordinationof regulatoryprogramsacross media and
with other state and local activities is anothermeans to
reduceuncertainty.Severalstateshave soughtto integrate
pollutionpreventionwith regulatoryprogramsin a strate-
gic planningprocessby requiringpollutionpreventionplans
from selected regulatedindustries.Planningrequirements
in severalstates institutemandatoryfacility planningpro-
gramsthat requirewaste generatorsto complete compre-
hensiveplans thatidentifyopportunitiesfor eliminatingor
reducingpollutantsand incorporatepollution prevention
into ongoing plantprocesses (Sullivanand Floyd 1991).
In addition, some states have centralizedand stream-
lined their environmentalpermittingprocesses. Such an
approachmay ease the regulatoryburdento industryby
shorteningthe developmentapprovalprocess and reduc-
ing uncertainty.At the sametime,centralizingenvironmen-
tal permittingmight assist states in dealing with cross-
media pollution(Rabe 1995).
Analysis
This study addressesseveralof the limitationsof previ-
ous researchby examining change in new capital invest-
ments in the 50 states over a 12-yearperiod from 1983-
1994.Thefederalgovernmentthroughthe 1970sdominated
environmentalpolicy (Ringquist1993;Yandle 1989). The
dramaticdevolutionof policy responsibilityto the states
did not occur until after the election of PresidentRonald
Reaganin 1980 (Ringquist1993;Vig andKraft1984). The
time frame understudy is thus ideally suited to studying
the effects of state environmentalpolicy activities on pri-
vate investment.Pooled cross-sectionaltime-seriesregres-
sion techniques are used to estimate this model. Invest-
ment is measured by new capital investments in
manufacturingotherthanfor pollutioncontrol.We lag all
of ourexplanatoryvariablesone yearto evaluatethe influ-
ences of statepolicies and past economic performanceon
new investment.
We includeindependentvariablesto operationalizeeach
Environmental
of the four dimensions of environmentalpolicy defined
above as well as past investmentpatterns.State expendi-
turesfor environmentalprotectionaremeasuredby annual
state pollution control expendituresper capita.' Regula-
tory stringency is measured as annual private pollution
abatement capital and operating cost per production
worker.2To measurepollutioncontrol incentives,the date
of adoptionsfor 10 specific incentives was identifiedand
an additiveindex of the numberof incentivesofferedeach
year was calculated.3The index reportsthe numberof in-
centive programsin place for each year.Fourmeasuresof
state programsand institutionalarrangementsthat reduce
uncertaintywere also included. First is an indicator of
whether environmentalprogramsare located in a super
agency that consolidates environmentaland natural re-
source programs.4Every year after such an agency was
createdis coded one, while non-adoptionstates/yearsare
coded zero. Efforts to coordinate diverse environmental
programsacross media and with state and local programs
were measuredby the presenceof strategicenvironmental
plansanda systemof one-stopfacilitypermitting.The date
of adoptionof a strategicplan for environmentalprotec-
tion and consolidationof multi-mediafacility permitting
was recorded.5Each year afterthe agency adopteda stra-
tegic plan is coded as one, while non-planagencies/years
are coded zero. While existence of a plan does not neces-
sarily show practicing strategicmanagement,this is the
best availablemeasureof strategicplanning.While strate-
gic plans can be subjectto change and revision, we found
stateenvironmentalmanagementplansto provideas stable
policy frameworkin this time frame.6
Finally, we measurestate-level regulatorycapacity by
the date when the state was grantedprimaryauthorityto
manage its environmentalprogramsunder the Resource
ConservationandRecoveryAct of 1976.This was recorded
and coded one for a primacy and zero otherwise.7The
model also providesstatisticalcontrolsfor the level of new
capital investmentin the preceding year and unit effects
for time and for states.We estimate the pooled model us-
ing ordinaryleast squares with panel corrected standard
errors(OLS/PCSE).8
The results of this analysis, shown in table 1, provide
supportfor the idea thatstateenvironmentalpolicy design
can have both positive and negative implicationsfor eco-
nomic development.Not surprisingly,previousinvestment
levels were the best predictorsof future investment.The
inclusionof investmenttrendsin the model is necessaryto
controlfor variationin productioncosts and to isolate the
effects of policy design. Table 1 indicatesthat, even after
controllingforpastinvestmentpatterns,stateenvironmental
expenditureshad a positive effect on new capital invest-
ments. This is not unexpected,because state expenditures
typically include actions to subsidize privatecosts of pol-
VersusEconomic
Protection
A FalseTrade-Off?317
Development:
Table1 PooledCross-Sectional Time-SeriesAnalysis it didnot achievestatisticalsignificance.Overall,thesefind-
State New CapitalInvestment1983-94 ings suggest thatprogramdesign andplanningthatreduce
Variable B Std.error t uncertaintyhave the potentialto offset the negativeinvest-
Previousinvestment .7657** .0406 18.87
ment effects of regulatorycosts.
Expenditures .00003** .00001 2.38
Incentives .0119 .0329 .36
Regulatorycosts -.0022* .0013 -1.65 Conclusion
Super agency .0040 .1601 .25 The relationshipsbetweenthese specific environmental
Primacy .3780** .1661 2.28 policy designs and new investmenthighlightthe dilemma
Strategic plan .4658** .2211 2.11 facing state policy makers as they try simultaneouslyto
One-stop permitting .2586 .1793 1.44
foster economic growthandpursueenvironmentalprotec-
R2:.89
AdjustedR2:.88 tion goals that might interferewith this growth.States re-
PooledDurbin-Watson d: 1.39 tain substantialdiscretionto allocate the costs of environ-
Durbin-Watson h:.38
N = 600 mental pollution control between the public and private
**p<.05
sectorsandto directincentivesfor specific types of invest-
lution preventionor cleanup. Because our model explic- ments. Programsthatraise productioncosts or providein-
itly controls for pollution abatementcosts, the expendi- centives to divert capital from productiveresources may
tureeffects reportedherereflectthe non-regulatoryactions reduce investmentsof new capital.
of states. While state spending has increased, it has not The resultspresentedhere suggest that states may free
increasedevenly among environmentalactivities. It will themselvesfromthis dilemmaby reducinguncertaintyover
be importantfor futureresearchto isolate the specific ac- rights in propertythroughefforts to coordinateenviron-
tivities supportedby state environmentalbudgets. mental decision-makingcapacity and providing credible
Ouranalysisalso foundevidencethatimposingthe costs regulatorycommitmentsto industry.The positive relation-
of pollution control on the privatesector reduces growth, ship betweencertainadministrativearrangementsfor state
althoughthis relationshipwas only statisticallysignificant environmental programs and economic growth suggests
at a .10 level. Even in the absenceof largenegativeeffects, trade-offs between business and environmental interests
specific industriesmightbe substantiallyaffectedby these may not be inevitable. Certainly this relationship is more
pollution control costs. The effects of tax incentives for complex than the trade-off debate suggests. Some elements
pollutioncontrolon new capitalinvestmentwere not found of state environmental policy may provide disincentives
to be significant.While these incentivesmay be effective for new investment while other elements and institutions
at inducing expenditureson pollution control equipment may encourage investment.
andfacilities, at least some of the capitaldevotedto pollu- Administrativeinstitutionsandpolicy design have been
tion reductionmay be divertedfrom investmenton other neglected in the study of state environmentalpolicy. Our
resourcesfor production.Previousworkhas suggestedthat findings suggest the need to examine the consequencesof
incentivesarepositively linkedto industrialexpansion,but programdesign for bothenvironmentalandeconomic out-
has failed to separatethe effects of incentiveson pollution comes and highlightthe importanceof the choice of insti-
control investmentand non-pollutioncontrol investment. tutionalarrangements,policy designs, andpolicy tools for
These offsetting effects may account for the relationship the abilityof environmentalprogramsto mediatethe nega-
uncoveredhere. tive economic costs of regulation.Thus, institutionalre-
Finally,ouranalysisprovidessubstantialsupportfor the form provides the promise of overcoming trade-offs be-
propositionthat private sector investmentand economic tween economic and environmental policy goals and
developmentcan be enhanced by environmentalregula- deserves much more attentionfrom scholars of environ-
tion thatreducesuncertainty.We find that states'environ- mentalpolicy and public administration.
mental capacity,as indicatedby achievementof primacy
status for regulation,resulted in significant increases in
levels of new capitalinvestment.In addition,the adoption
Acknowledgments
of a strategicplan for environmentalpolicy had a strong An earlier version of this manuscriptwas presented at the
positive effect on new investment.Takentogether,capac- 1999 annual meeting of the American Society for Public Ad-
ity and strategicplanning suggest that states can produce ministration.The authors thank Evan Ringquist, Paul Brace,
settings that make it easier to work with the subjects of LauraLanger,and EdwardWeberfor comments on earlierver-
regulationand to forestall some of theirfears. The coeffi- sions of thismanuscript.Wealso wantto thankCassandraShelley,
cient for streamlinedregulatoryprocessesthatutilizedone- who was especially helpful in the collection of data.
stop permittingwas in the predictedpositive directionbut

318 Public
Administration
Review* May/June
2001,Vol.61, No.3
 Notes
1. Expendituredata through 1981 is reportedin the U.S. De- 6. Therewas some concernon ourpartthatstateenvironmental
partmentof Commerce'sreportEnvironmentalQualityCon-
trol, which was discontinuedin 1981. The remainingyears
of environmentalspendingdatawerecollectedfromtheCoun-
cil of StateGovernments'ResourceGuidefor State Environ-
mental Management.This data was compiled and reported
only in 1986, 1988, and 1991, thus expendituresfor several
yearsaremissing. We estimatedexpendituresfor these years
using linearinterpolation.
2. The impositionof pollutionabatementcosts on privatefirms
was taken from variousyears of PollutionAbatementCosts
and Expenditures,published annually by the U.S. Depart-
ment of Commerce.
3. Pollution control incentives were taken from various issues
of IndustrialDevelopmentand Site SelectionHandbook,pub-
lished by Conway Publication.The incentives for pollution
control include: real and personalpropertytax exemptions,
sales/use tax exemptions of purchasesor lease of pollution
controlfacilities, creditagainstcorporateincome tax, accel-
erateddepreciationof pollutioncontrolequipment,exclusion
of pollutioncontrolinvestmentfrom corporatefranchisetax,
exemption of cost of operatingpollution control facilities,
and state financingof pollutioncontrolfacilities.
4. The point in time when a state consolidatedits environmen-
tal programsinto a single "super"agency was gatheredfrom
Council of State Governmentspublications,includingInte-
gration and Coordinationof State EnvironmentalPrograms
(1975) and variousyears of the Resource Guide to Environ-
mentalManagement,and the Book of the States.
7. The originalsource for when states gained primaryadminis-
5. Adoptiondatesfor environmentalstrategicplanswas derived
from Berry's (1994) survey of state agencies from 1970 to
1991 for the Councilof StateGovernments.The surveyindi-
catedthe year stateenvironmentalagencies adopteda strate-
gic plan.
8. We conducted a series of regression diagnostics on the re-
Environmental
agencieswouldchangetheirstrategicplansquiteoften, which
could contributeto uncertaintyratherthan certainty.There-
fore, we contactedeach of the states thathad adoptedstrate-
gic plans over the period of study.We found that state envi-
ronmental strategic plans are much more stable than we
initially believed. State environmental agencies that had
adopteda strategicplanningprocess had originallyintended
for these documentsto include annualreportingof program-
matic success and to be revised "as needed."This was origi-
nally conceived to be annuallyor bi-annuallydependingon
the state budget cycle. However,this has not been the case.
The states that have strategicplans do try to revise them as
needed, but these revisions have been done infrequently.For
example, the strategicplan for the WashingtonState Depart-
ment of Ecology is supposedto be revised every two years
(as part of the biennial budget preparationprocess). How-
ever, in actuality,the strategicgoals of the plan may or may
not change with each new gubernatorialadministration.The
department also notes thatthe strategicmission of the agency
has not changed since 1988. The IndianaDepartmentof En-
vironmental Management (IDEM)is also typicalof the states
with strategic plans. The IDEM adoptedits strategicplan in
1994. In 1998, the plan was revised after the election of a
new governor.This revision falls outside of the periodof our
study.This is also true for many of the states. Manyrevisions
from 1983 to
did not occur until after the studyperiod. Thus,
1994, state environmentalstrategicplans were quite stable
and were revised very little.
trativeresponsibilityfor ResourceConservationand Recov-
ery Act programswas derivedfrom the U.S. Code of Federal
Regulations and the U.S. EPA Office of Air and Radiation
(Lester 1989).
siduals obtainedfrom an OLS estimation.Little evidence of
auto-correlatederrorswas revealedby the DurbinWatsonh
for the estimationwith a lagged dependentvariable.
Economic
Versus
Protection
Development: 319
A FalseTrade-Off?
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