Essays on Corporate Environmental Responsibility Motivated by Water Use and Pollution

Abstract

This dissertation uses empirical and analytical methodologies to analyze firms’ environmental efforts driven by regulatory, societal, and operational water risks. The first essay empirically evaluates the effect of water pollution regulation on U.S. public wastewater utilities. Specifically, I use a frontier analysis followed by a regression model to analyze the impact of two regulatory actions on the utilities’ operational and environmental efficiencies. I find that wastewater utilities apply environmental management systems when the water receiving their pollution discharges is officially declared impaired by the regulators. However, when increased limits are imposed on their discharging permits, the utilities implement pollution control technologies, which decreases their operational efficiency. The results also imply that water pollution regulation and the applied abatement efforts do not affect the utilities’ environmental performance. The second essay uses an optimal control model to determine the optimal production quantities, abatement efforts, and social expenses for a firm that faces conflict with a local community due to water pollution. I first develop a basic model that does not consider conflict. Next, I include the impact of conflict and compare the optimal choices with those from the basic model. I find and discuss important thresholds for which the optimal decisions vary according to the firm’s environmental, regulatory, and operational parameters. Finally, motivated by increasing water scarcity, the third essay uses an optimal control model to evaluate the quantities of water to be procured from external sources and to be recycled to reduce the firm’s operational water risks. The model balances water acquisition costs, pollution tax, and water treatment expenses for a firm that can extract groundwater from an aquifer and procure water from a municipality. In particular, I analyze the results of using water recycling to reduce a firm’s water consumption and pollution discharges. The findings from these essays contribute to a growing stream within the environmental literature and provide managerial insights that can benefit firms, regulators, and communities.