The Costs of Decentralization: Water Quality Spillovers from the Re-Drawing of County Boundaries in Brazil

Molly Lipscomb, University of Colorado at Boulder and World Bank Group
Mushfiq Mobarak, University of Colorado at Boulder

We examine the effect of political decentralization on pollution levels in Brazilian rivers. Upstream water use has spillover effects on downstream jurisdictions; greater decentralization (e.g. a larger number of political jurisdictions managing the same river) may exacerbate these spillovers, as upstream communities have fewer incentives to restrain their members from polluting the river at their borders. We use a panel dataset of over 21,000 water quality measures collected at 795 monitoring stations located in all eight river basins across Brazil and the evolving boundaries of the 5500 counties across Brazil to study (a) whether water quality degrades across jurisdictional boundaries, and (b) whether the splitting of counties (i.e. greater decentralization) is associated with larger deterioration in water quality over time. We find that an additional county border crossing leads to a 29% larger decline in water quality after controlling for population levels.