Identifier

1122

Document Type

Discussion Paper

Date of Paper

Winter 1-2026

Abstract

Economic development relies on and transforms the environment. The transformation is evident in the poor environmental quality in many developing countries. For example, air quality in Southeast Asia is three times worse than in the United States, in sub-Saharan Africa four times worse and in South Asia more than six times worse. We model how environmental quality affects health, productivity and well-being and how individuals privately adapt to environmental hazards. We also model how collective action and formal regulation contribute to environmental quality. We draw three main findings from a review of empirical research on these mechanisms. First, individual adaptation to environmental hazards is both inadequate as a remedy and inefficiently low. Second, collective action, without the state, to manage resources or address externalities has been outstripped by the scale of environmental problems. Third, state action through formal regulation works better than it looks. Many formal regulations are coarse, poorly targeted and inefficient, but nonetheless yield benefits in excess of their costs.

Acknowledgements

We thank Adaolisa Ezekobe and Alexander Abajian for outstanding research assistance. The chapter was greatly improved by comments from Clare Balboni, Robin Burgess, Fiona Burlig, Esther Duflo, Teevrat Garg, Seema Jayachandran, Agnes Norris-Keiller, Benjamin Olken, Sheetal Sekhri, Pol Simpson, and the Editors, Pascaline Dupas, Pinelopi Goldberg and Rohini Pande. Nicholas Ryan acknowledges financial support from NSF Career Grant #2143098.

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