The effect of Integrated Pollution Prevention and Control regulation on facility performance

Over the past fifteen years there has been considerable debate in the economic literature about what is the proper design of environmental regulation that can be effective. In this article, we provide a contribution to the literature and empirical evidence by focusing on a new form of direct regulation introduced by the European Union: the Integrated Pollution Prevention Control regulation. By using data from different sources, we performed ordered probit regression and found that the design of Integrated Pollution Prevention and Control permit provides a positive impulse for increasing investments and, as a consequence, produces positive effects on performance at the facility level. Our study clearly shows that direct regulation can have a strong and significant effect on performance, but it depends on how it is designed. The main managerial implication stemming from our work is the need to properly design approaches and tools for direct regulations.