Firm size and environmental effort under spatial externalities: Evidence from Norwegian salmon farming

Managing spatial externalities in natural resource industries poses regulatory challenges. We examine whether ownership structure shapes private incentives for environmental management in Norwegian salmon aquaculture. Sea lice-parasites that damage fish health and reduce growth-disperse among farms via ocean currents. Delousing at one farm benefits neighbors, while the treating farm bears the cost alone. We test whether firms controlling a larger share of local production are more likely to undertake treatments, in line with internalizing spillover benefits. Using microdata on 250,000 farm-week observations (2012–2021), we find strong support: a five percentage-point increase in local firm share is associated with a 0.4 percentage-point increase in weekly treatment probability – for a typical nine-farm cluster, roughly one to two additional treatments annually. The effect appears at distances matching lice dispersal biology (25–75 km) but disappears at 100 km. These findings suggest that aligning ownership structure with the spatial extent of externalities could complement regulation by harnessing private incentives.