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Environmental Regulation, Investment Timing, and Technology Choice

Author

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  • Wayne B. Gray
  • Ronald J. Shadbegian

Abstract

We test whether environmental regulation affects investment decisions, using Census data for individual paper mills. New mills in states with strict environmental regulations choose cleaner production technologies, with differences in air and water pollution regulation also influencing technology choice. Examining investment allocation across existing plants, we find that abatement and productive investment tend to be scheduled together. However, plants with high abatement investment over the entire period spend significantly less on productive capital. This seems to reflect both environmental investment ‘crowding out’ productive investment within a plant, and firms shifting investment towards plants facing less stringent abatement requirements.

Suggested Citation

  • Wayne B. Gray & Ronald J. Shadbegian, 1998. "Environmental Regulation, Investment Timing, and Technology Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 235-256, June.
    • Handle: RePEc:bla:jindec:v:46:y:1998:i:2:p:235-256
    DOI: 10.1111/1467-6451.00070
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    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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