Reevaluating the ozone nonattainment standards: Evidence from the 2004 expansion

In 2004 the EPA implemented the largest regulatory expansion of the National Ambient Air Quality Standards since the program's inception in the 1970's. As a result, polluting plants in hundreds of counties faced significant new regulatory costs. This paper discusses the selection process by which counties were designated as nonattainment and provides empirical evidence on the impacts of these regulations on employment, establishments and establishment size in exposed industries. Results from a nonparametric differences-in-differences matching estimator show that, relative to the constructed counterfactual, employment in affected industries temporarily increased (fell less), the number of establishments permanently decreased and establishment size increased. These findings are consistent with regulation increasing firms' investment and entry costs.