In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. This article reports on a two-year field experiment in the Indian state of Gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. There are three main results. First, the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher.

India

The Minister released a discussion paper on an emissions trading scheme for air pollutants in India. The paper has been prepared by experts from J-PAL, MIT and Harvard University at the request of the Ministry. This paper connects experience with emissions
trading, from programs like the U.S. Rain program, to lessons for implementation of a Trading Pilot Scheme in India.

Emissions trading schemes have great potential to lower pollution while minimizing compliance costs for firms in many areas now subject to traditional command-and-control regulation. This paper connects experience with emissions trading, from programs like the
U.S. Acid Rain program, to lessons for implementation of a Trading Pilot Scheme in India.