Environmental Regulation and Industry Dynamics

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Environmental Regulation and Industry Dynamics

Author Info

Aditi Sengupta () (SMU)

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Aditi Sengupta

Abstract

We examine the effect of more stringent environmental regulation on the dynamic structure of a deterministic competitive industry with endogenous entry and exit where firms invest in reduction of their future compliance cost. The level of regulation is exogenously fixed and constant over time. The compliance cost of a firm at each point of time depends on its current output, its accumulated past investment and the level of regulation. We outline sufficient conditions under which industries with more stringent regulation are associated with higher investment in compliance cost reduction and higher shake-out of firms over time; the opposite may be true under certain circumstances. Our analysis indicates that the effect of a change in regulation on market structure may be lagged over time.

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Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0903.

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Length: 24 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:smu:ecowpa:0903

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-06-10 (All new papers)
NEP-COM-2009-06-10 (Industrial Competition)
NEP-ENV-2009-06-10 (Environmental Economics)
NEP-MIC-2009-06-10 (Microeconomics)
NEP-REG-2009-06-10 (Regulation)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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