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Empirical essays on firm behavior in India

In this thesis, I study the behavior of industrial firms in India in the electricity market and with respect to locational choice and environmental regulation. In the first chapter, I study the competitive effects of transmission infrastructure on market outcomes in the Indian day-ahead electricity market. Transmission constraints may increase local market power by limiting competition across regions. I find that bidders in import-constrained regions do raise bid prices in response to congestion and I simulate the effects of relaxing transmission constraints using a structural model of power-market bidding. The welfare gain from infrastructure expansion is large as a share of market surplus and mostly due to the strategic responses of bidders to a better-integrated market. In the second chapter, I study the agglomeration of manufacturing activity in India. Industry in India is shown to be spatially agglomerated to an extent similar to that observed in the United States and perhaps slightly greater. All the Marshallian forces of linkages in goods, labor and ideas between industries are important for industrial colocation, with hiring similar workers the strongest predictor of coagglomeration patterns. Finally, in the third chapter, my advisors, Esther Duflo and Michael Greenstone, Rohini Pande and I measure the effects of auditor independence on the reliability of reports by third-party environmental auditors and the regulatory compliance of the firms they audit, using a field experiment. We find that a reformed audit system in which auditors were randomly assigned to plants, monitored and given incentives for accuracy greatly improves the accuracy of auditor reporting, as measured by independent backchecks of true pollution levels. Moreover, the treatment plants subject to greater scrutiny under the reformed audit system responded by reducing pollution output relative to the control group. Thesis Supervisor: Esther Duflo Title: Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics Thesis Supervisor: Michael Greenstone Title: 3M Professor of Environmental Economics