The Distributional Consequences of Incomplete Regulation

Incomplete environmental regulation can shift production from regulated to unregulated sectors, affecting the spatial distribution of pollution and who bears its burden. I study this phenomenon in the context of sugarcane processing in Mexico. Firms responded to requirements to install air pollution controls in mills by increasing agricultural fires in sugarcane fields by 15%. As a result, PM2.5 concentrations rose by 7% with higher impacts in socioeconomically vulnerable communities. These findings highlight an often undiscussed implication of incomplete pollution regulation: its distributional consequences.