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Averting Regulatory Enforcement: Evidence from New Source Review

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  • Nathaniel Keohane
  • Erin T. Mansur
  • Andrey Voynov

Abstract

This paper explores firms' response to regulatory enforcement. New Source Review, a provision of the Clean Air Act, imposes stringent emissions limitations on significantly modified older power plants. In 1999, the EPA sued owners of 46 plants for NSR violations. We study how electricity companies respond to both the perceived threat of future action, and the action itself. A discrete choice model estimates plants likelihood of being named in lawsuits increases with large historic emissions and investments. On the eve of the lawsuits, emissions at plants with a one standard deviation greater probability of being sued fell approximately ten percent.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13512.

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Date of creation: Oct 2007
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Publication status: published as Nathaniel O. Keohane & Erin T. Mansur & Andrey Voynov, 2009. "Averting Regulatory Enforcement: Evidence from New Source Review," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 18(1), pages 75-104, 03.
Handle: RePEc:nbr:nberwo:13512

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  1. Laplante, Benoit & Rilstone, Paul, 1996. "Environmental Inspections and Emissions of the Pulp and Paper Industry in Quebec," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 19-36, July.
  2. Magat, Wesley A & Viscusi, W Kip, 1990. "Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 33(2), pages 331-60, October.
  3. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-73, May.
  4. Lyon,Thomas P. & Maxwell,John W., 2004. "Corporate Environmentalism and Public Policy," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521819473.
  5. Glachant, Matthieu, 2007. "Non-binding voluntary agreements," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 32-48, July.
  6. Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 998-1033, October.
  7. Gray, Wayne B. & Deily, Mary E., 1996. "Compliance and Enforcement: Air Pollution Regulation in the U.S. Steel Industry," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 96-111, July.
  8. Maxwell, John W & Lyon, Thomas P & Hackett, Steven C, 2000. "Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 43(2), pages 583-617, October.
  9. Lyon, Thomas P. & Maxwell, John W., 2003. "Self-regulation, taxation and public voluntary environmental agreements," Journal of Public Economics, Elsevier, Elsevier, vol. 87(7-8), pages 1453-1486, August.
  10. Anton, Wilma Rose Q. & Deltas, George & Khanna, Madhu, 2002. "Incentives for Environmental Self-Regulation and Implications for Environmental Performance," Working Papers, University of Illinois at Urbana-Champaign, College of Business 02-0120, University of Illinois at Urbana-Champaign, College of Business.
  11. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(3), pages 331-48, September.
  12. Bartel, Ann P & Thomas, Lacy Glenn, 1985. "Direct and Indirect Effects of Regulation: A New Look at OSHA's Impact," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 28(1), pages 1-25, April.
  13. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 88-97, January.
  14. Maloney, Michael T & Brady, Gordon L, 1988. "Capital Turnover and Marketable Pollution Rights," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 31(1), pages 203-26, April.
  15. List John A. & Millimet Daniel L & McHone Warren, 2004. "The Unintended Disincentive in the Clean Air Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 3(2), pages 1-28, February.
  16. Lence, Sergio H., 2006. "The Economic Effects of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers, Iowa State University, Department of Economics 13132, Iowa State University, Department of Economics.
  17. Nelson, Randy A, 1984. "Regulation, Capital Vintage, and Technical Change in the Electric Utility Industry," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 59-69, February.
  18. Eckert, Heather, 2004. "Inspections, warnings, and compliance: the case of petroleum storage regulation," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 232-259, March.
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Cited by:
  1. Wayne B. Gray & Jay P. Shimshack, 2011. "The Effectiveness of Environmental Monitoring and Enforcement: A Review of the Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 3-24, Winter.
  2. Meredith Fowlie & Stephen P. Holland & Erin T. Mansur, 2012. "What Do Emissions Markets Deliver and to Whom? Evidence from Southern California's NOx Trading Program," American Economic Review, American Economic Association, American Economic Association, vol. 102(2), pages 965-93, April.
  3. Ian Lange & Josh Linn, 2006. "Bush v. Gore and the Effect of New Source Review on Power Plant Emissions," Working Papers, University of Washington, Department of Economics UWEC-2007-02, University of Washington, Department of Economics.
  4. Bushnell, James & Wolfram, Catherine, 2010. "Enforcement of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers, Iowa State University, Department of Economics 31805, Iowa State University, Department of Economics.
  5. Heutel, Garth, 2011. "Plant vintages, grandfathering, and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 36-51, January.
  6. Calcott, Paul, 2012. "Regulatory triggers and New Source Review," Resource and Energy Economics, Elsevier, Elsevier, vol. 34(3), pages 337-348.
  7. Mieno, Taro & Brozovic, Nicholas, 2012. "Unraveling deterrence effects of regulatory activities under Clean Water Act," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124612, Agricultural and Applied Economics Association.

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