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When Do Firms Shift Production Across States to Avoid Environmental Regulation?

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  • Wayne B. Gray
  • Ronald J. Shadbegian

Abstract

This paper takes a new approach to testing the impact of state environmental regulatory stringency on firms' location decisions, focusing on firms' allocation of production across states. We use Census data for the paper industry to measure the share of each firm's production in each state during 1967-2002. We use a conditional logit model, controlling for a variety of state characteristics that influence firm costs and revenues, and testing several measures of state environmental stringency. Firms allocate significantly smaller production shares to states with stricter regulations, but there is significant heterogeneity across firms in their sensitivity to regulatory stringency. Firms with low compliance rates are more sensitive than firms with high compliance rates, consistent with a model where compliance rates are driven by differences across firms in the costs of compliance, rather than in the benefits of compliance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8705.

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Date of creation: Jan 2002
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Handle: RePEc:nbr:nberwo:8705

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  1. Berman, Eli & Bui, Linda T. M., 2001. "Environmental regulation and labor demand: evidence from the South Coast Air Basin," Journal of Public Economics, Elsevier, vol. 79(2), pages 265-295, February.
  2. 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.
  3. Fare, Rolf, et al, 1989. "Multilateral Productivity Comparisons When Some Outputs Are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 90-98, February.
  4. Wayne B Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," Working Papers 97-8, Center for Economic Studies, U.S. Census Bureau.
  5. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September.
  6. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
  7. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 77(5), pages 998-1006, December.
  8. 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.
  9. Virginia D. McConnell & Robert M. Schwab, 1990. "The Impact of Environmental Regulation on Industry Location Decisions: The Motor Vehicle Industry," Land Economics, University of Wisconsin Press, vol. 66(1), pages 67-81.
  10. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier, Elsevier.
  11. Eli Berman & Linda T. M. Bui, 2001. "Environmental Regulation And Productivity: Evidence From Oil Refineries," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 498-510, August.
  12. Deily, Mary E. & Gray, Wayne B., 1991. "Enforcement of pollution regulations in a declining industry," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 260-274, November.
  13. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers 88-2, Center for Economic Studies, U.S. Census Bureau.
  14. Wayne B. Gray & Ronald J. Shadbegian, 1997. "Environmental Regulation, Investment Timing, and Technology Choice," NBER Working Papers 6036, National Bureau of Economic Research, Inc.
  15. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October.
  16. Boyd, Gale A. & McClelland, John D., 1999. "The Impact of Environmental Constraints on Productivity Improvement in Integrated Paper Plants," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 121-142, September.
  17. Timothy J. Bartik, 2002. "The Effects of Environmental Regulation on Business Location in the United States," Book chapters authored by Upjohn Institute researchers, in: Wayne B. Gray (ed.), Economic Costs and Consequences of Environmental Regulation, pages 129-151 W.E. Upjohn Institute for Employment Research.
  18. Barbera, Anthony J & McConnell, Virginia D, 1986. "Effects of Pollution Control on Industry Productivity: A Factor Demand Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 161-72, December.
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Cited by:
  1. Cole, Matthew A. & Elliott, Robert J.R. & Wu, Shanshan, 2008. "Industrial activity and the environment in China: An industry-level analysis," China Economic Review, Elsevier, vol. 19(3), pages 393-408, September.
  2. Shimshack, Jay P. & Ward, Michael B., 2005. "Regulator reputation, enforcement, and environmental compliance," MPRA Paper 25994, University Library of Munich, Germany.
  3. Jay P. Shimshack & Michael B. Ward, 2004. "Enforcement and Environmental Compliance: A Statistical Analysis of the Pulp and Paper Industry," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0414, Department of Economics, Tufts University.
  4. Martin T. Ross & Michael P. Gallaher & Brian C. Murray & Wanda W. Throneburg & Arik Levinson, 2004. "PACE Survey: Background, Applications, and Data Quality Issues," NCEE Working Paper Series, National Center for Environmental Economics, U.S. Environmental Protection Agency 200409, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jul 2004.

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