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In this paper we show that plants respond to downstream ambient water quality after controlling for permitted levels of pollution. We find if past water quality declines by one percent, plants reduce current pollution by 0.35 percent. The magnitude of this coefficient is comparable to the coefficient on permitted discharge levels i.e. regulatory stringency itself. Results are consistent with two mechanisms. First, a decline in water quality may lead to more stringent permits that would raise the cost of abatement of a plant significantly. Second, the plant is likely to be subject to increased public pressure in response to poor water quality. Indeed, as expected, the impact of water quality becomes stronger in locations with higher median household income, higher percent carpooling to work, or lower percent of manufacturing employment but surprisingly with lower median age of residents, lower percent with bachelor׳s degree or higher percent of families with children.
