Governments use ‘green’ regulatory threat as an instrument to induce ‘voluntary’ pollution abatement by firms. If threats suffice to induce adequate reductions in emissions, they may save considerable implementation and monitoring costs. However, green regulatory threat can only induce emission reductions when firms find the threat credible and do not free-ride on other firms’ abatement effort. The effect of regulatory threat can be backed out from the data by conditioning abatement effort on firm characteristics.1 Theory suggests a measure of environmental exposure that combines a firm’s (1) composition and toxicity of emissions; (2) its size and pollution intensity; and (3) its location that determines the size of the population at risk. Furthermore, firms’ abatement effort is conditioned on whether they meet participation and incentive constraints determined by their unabated pollution intensity and unit abatement cost. Then firms’ position relative to other firms—their rung on the abatement ladder—determines their participation in abatement activity.

Do scale economies help to explain international trade flows? Using a large database on output, trade flows, and factor endowments, we find that allowing for the presence of increasing returns to scale in production significantly increases our ability to predict international trade flows. In particular, using trade data, we find that a third of all goods-producing industries are characterized by increasing returns to scale. Thus, scale economies are a quantifiable and important source of comparative advantage.

Financial press reports claim that Internet stock message boards can move markets. We study the effect of more than 1.5 million messages posted on Yahoo! Finance and Raging Bull about the 45 companies in the Dow Jones Industrial Average and the Dow Jones Internet Index. Bullishness is measured using computational linguistics methods. Wall Street Journal news stories are used as controls. We find that stock messages help predict market volatility. Their effect on stock returns is statistically significant but economically small. Consistent with Harris and Raviv (1993) , disagreement among the posted messages is associated with increased trading volume.

This paper investigates how openness to international goods markets affects pollution concentrations. We develop a theoretical model to divide trade's impact on pollution into scale, technique, and composition effects and then examine this theory using data on sulfur dioxide concentrations. We find international trade creates relatively small changes in pollution concentrations when it alters the composition of national output. Estimates of the trade-induced technique and scale effects imply a net reduction in pollution from these sources. Combining our estimates of all three effects yields a somewhat surprising conclusion: freer trade appears to be good for the environment.