Bennear and Olmstead have written The Impacts of the 'Right to Know': Information Disclosure and the Violation of Drinking Water Standards. The Abstract:
The 1996 Amendments to the Safe Drinking Water Act mandated that community drinking water systems issue annual consumer confidence reports (CCRs) to their customers. The CCRs must contain information on violations of drinking water regulations as well as information on the levels of contaminants in drinking water, even if these levels are below the regulatory limits. We examine whether the mandatory provision of information induced reductions in violations using panel data collected by the State of Massachusetts on drinking water violations by 498 community water systems from 1990-2003. We use several estimation strategies to isolate the causal effect of information disclosure on violations including panel data models, quantile regression, and regression discontinuity models. We find little evidence that the requirement to compile a CCR lowered violations. However, we do find some evidence that utilities that were required to mail their CCRs directly to customers violated standards less frequently after the CCR rule took effect. This result is intuitive in light of the likely pathways through which information disclosure is thought to affect the behavior of regulated entities. Because utilities were already required to report violations to the state, the utility itself does not learn much by compiling the data for the CCR. The CCR only impacts utility behavior if there is a political response to the findings, which is more likely when the public is made directly aware of violations by mail.
In effect, your research displays the inefficiency, at least with respect to the regulation of clean water and emission violators, of information intermediaries, including the government regulators. It would appear that no market has arisen to bridge the gap between the filed-but-unmailed disclosures and the consumers. This is unlike what happens in, for example the securites industry, where many, many types of required federal filings are monitored by investment advisors and immediately sliced-and-diced for explanation to their paying clients and, through them, the market.
In your research, it appears that no such liquid secondary information market has emerged, despite the importance of clean water. The question is then "Why?" and some possible answers would be (a) clean water is not as valuable as equities (or at least you can't make as much money off of it), so the costly information tools don't arise; or (b) it is, or is considered, more effective to engage in rent-seeking for regulation in an environmental context, and rent-seeking has different time horizons than profit-seeking, so the information needs are different and no rapid-response information market arises; or (c) market structures differ so that it is harder to identify who would benefit and pay for the services of market intermediaries in the environmental context, perhaps because of the differing perceptions of profit-seeking versus rights-assertion. Generally seeking, one doesn't mind spending money to make money. On the other hand, one often resents having to spend money to hang on to what is perceived as a birthright, whether it be a family heirloom or potable water.
Interestingly, it would appear that the information about violations does have some market value, since your research indicates that the release produces measurable change when mailed directly to consumers. This at least suggests that there is some potential for information arbitrage where there is no mandate for direct consumer disclosure but the information is public.
Posted by: Bill Mock | December 01, 2006 at 02:09 PM