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The Impacts of the Americans with Disabilities Act on the Entry and Exit of Retail Firms

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  • James E. Prieger

Abstract

Congress enacted The Americans with Disabilities Act of 1990 over the protests of small business advocates who claimed that the ADA would trigger a wave of bankruptcies. Although the profitability of firms may suffer from the costs of ADA compliance, no systematic evidence is available. This paper seeks to determine if the ADA had a measurable impact on both the entry of new firms and the failure rates (exit) of existing firms. The data used in the study are counts of business establishments currently operating by county and type of business. Backing out the entry and exit rates from the establishment count data is a major econometric contribution of the paper. The empirical results imply that the ADA indeed decreased the number of retail firms. There were fewer retail firms after the ADA was passed, and the drop was larger in states in which the ADA was more of a legal innovation, and in states that had more disabled people, more ADA-related lawsuits, and more ADA-related labor complaints. The same conclusions hold when baseline trends for larger establishments (those least vulnerable to the costs imposed by the ADA) are differenced out. There is also evidence that employment and access discrimination suits imposed real costs on retail stores, encouraging exit. However, the exit of incumbents was partially offset by new entrants, which may imply that stores less able to adapt to the new requirements made room for the entry of stores better able to adapt. So, while the prediction by the pessimists that the ADA would cause firms to fail may be correct, the decline in the number of firms was partially offset by new entry.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 589.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:589

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Keywords: entry; exit; count data models; queuing theory; ADA; industry dynamics;

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  2. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(4), pages 657-74, August.
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  18. De Vany, Arthur & Frey, Gail, 1982. "Backlogs and the Value of Excess Capacity in the Steel Industry," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 441-51, June.
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Cited by:
  1. William Kerr & Adriana Kugler & David Autor, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Working Papers 07-04, Center for Economic Studies, U.S. Census Bureau.
  2. James Prieger, 2007. "The Impact of Cost Changes on Industry Entry and Exit," Journal of Economics, Springer, Springer, vol. 91(3), pages 211-243, July.
  3. James E. Prieger, 2005. "The Impact of Cost Changes on Industry Dynamics," Working Papers, University of California, Davis, Department of Economics 51, University of California, Davis, Department of Economics.

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