TY  - JOUR
AU  - Becker,Randy A.
AU  - Henderson,J. Vernon
TI  - Costs of Air Quality Regulation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7308
PY  - 1999
Y2  - August 1999
UR  - http://www.nber.org/papers/w7308
L1  - http://www.nber.org/papers/w7308.pdf
N1  - Author contact info:
Randy Becker
Bureau of the Census
E-Mail: randy.a.becker@census.gov

J. Vernon Henderson
Department of Economics
Box B
Brown University
Providence, RI 02912
Tel: 401/863-2886
Fax: 401/863-1970
E-Mail: j_henderson@brown.edu
M1  - published as Randy A. Becker, J. Vernon Henderson. "Costs of Air Quality Regulation," in Carlo Carraro and Gilbert E. Metcalf, editors, "Behavioral and Distributional Effects of Environmental Policy" University of Chicago Press (2001)

AB  - This paper explores some costs associated with environmental regulation.  We focus on regulation pertaining to ground-level ozone (O3) and its effects on two manufacturing industries -- industrial organic chemicals (SIC 2865-9) and miscellaneous plastic products (SIC 308).  Both are major emitters of volatile organic compounds (VOC) and nitrogen oxides (Nox), the chemical precursors to ozone.  Using plant-level data from the Census Bureau's Longitudinal Research Database (LRD), we examine the effects of regulation on the timing and magnitudes of investments by firms and on the impact it has had on their operating costs.  As an alternative way to assess costs, we also employ plant-level data from the Pollution Abatement Costs and Expenditures (PACE) survey. Analyses employing average total cost functions reveal that plants' production costs are indeed higher in (heavily-regulated) non-attainment areas relative to (less-regulated) attainment areas.  This is particularly true for younger plants, consistent with the notion that regulation is most burdensome for new (rather than existing) plants.  Cost estimates using PACE data generally reveal lower costs.  We also find that new heavily-regulated plants start our much larger than less-regulated plants, but then do not invest as much. Among other things, this highlights the substantial fixed costs involved in obtaining expansion permits.  We also discuss reasons why plants may restrict their size.
ER  -