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Plant vintage, technology, and environmental regulation

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  • Gray, Wayne B.
  • Shadbegian, Ronald J.

Abstract

Does the impact of environmental regulation differ by plant vintage and technology? We answer this question using annual Census Bureau information on 116 pulp and paper mills’ vintage, technology, productivity, and pollution abatement operating costs for 1979-1990. We find a significant negative relationship between pollution abatement costs and productivity levels. This is due almost entirely to integrated mills (those incorporating a pulping process), where a one standard deviation increase in abatement costs is predicted to reduce productivity by 5.4 percent. Older plants appear to have lower productivity but are less sensitive to abatement costs, perhaps due to 'grandfathering' of regulations. Mills which undergo renovations are also less sensitive to abatement costs, although these vintage and renovation results are not generally significant. We find similar results using a log-linear version of a three input Cobb-Douglas production function in which we include our technology, vintage, and renovation variables. Sample calculations of the impact of pollution abatement on productivity show the importance of allowing for differences based on plant technology. In a model incorporating technology interactions we estimate that total pollution abatement costs reduce productivity levels by an average of 4.7 percent across all the plants. The comparable estimate without technology interactions is 3.3 percent, approximately 30% lower.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 46 (2003)
Issue (Month): 3 (November)
Pages: 384-402

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Handle: RePEc:eee:jeeman:v:46:y:2003:i:3:p:384-402

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Web page: http://www.elsevier.com/locate/inca/622870

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  1. Doms, Mark E, 1996. "Estimating Capital Efficiency Schedules within Production Functions," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(1), pages 78-92, January.
  2. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 59(1-2), pages 87-97, September.
  3. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
  4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
  5. Lisa M Lynch & Sandra E Black, 2002. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," Working Papers, Center for Economic Studies, U.S. Census Bureau 02-04, Center for Economic Studies, U.S. Census Bureau.
  6. Gollop, Frank M & Roberts, Mark J, 1983. "Environmental Regulations and Productivity Growth: The Case of Fossil-Fueled Electric Power Generation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 654-74, August.
  7. Wayne B. Gray & Ronald J. Shadbegian, 1995. "Pollution Abatement Costs, Regulation, and Plant-Level Productivity," NBER Working Papers 4994, National Bureau of Economic Research, Inc.
  8. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 998-1006, December.
  9. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0205, National Bureau of Economic Research, Inc.
  10. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers, Center for Economic Studies, U.S. Census Bureau 88-2, Center for Economic Studies, U.S. Census Bureau.
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