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Environmental Regulation And Productivity: Evidence From Oil Refineries

  • Eli Berman
  • Linda T. M. Bui

We examine the effect of air quality regulation on productivity in some of the most heavily regulated manufacturing plants in the United States, the oil refineries of the Los Angeles (South Coast) Air Basin. We use direct measures of local air pollution regulation to estimate their effects on abatement investment. Refineries not subject to these regulations are used as a comparison group. We study a period of sharply increased regulation between 1979 and 1992. Initial compliance with each regulation cost $3 million per plant and a further $5 million to comply with increased stringency. We construct measures of total factor productivity using Census of Manufacturers output and materials data that report physical quantities of inputs and outputs for the entire population of refineries. Despite high costs associated with the local regulations, productivity in the Los Angeles Air Basin refineries rose sharply between 1987 and 1992, which was a period of decreased refinery productivity in other regions. We conclude that abatement cost measures may grossly overstate the economic cost of environmental regulation as abatement can increase productivity. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/00346530152480144
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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 83 (2001)
Issue (Month): 3 (August)
Pages: 498-510

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Handle: RePEc:tpr:restat:v:83:y:2001:i:3:p:498-510
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  1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
  2. Barbera, Anthony J. & McConnell, Virginia D., 1990. "The impact of environmental regulations on industry productivity: Direct and indirect effects," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 50-65, January.
  3. Dale W. Jorgenson & Peter J. Wilcoxen, 1990. "Environmental Regulation and U.S. Economic Growth," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 314-340, Summer.
  4. 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, vol. 91(4), pages 654-74, August.
  5. Roberts, Mark J. & Supina, Dylan, 1996. "Output price, markups, and producer size," European Economic Review, Elsevier, vol. 40(3-5), pages 909-921, April.
  6. Eli Berman & Linda T. Bui, 1997. "Environmental Regulation and Labor Demand: Evidence from the South Coast Air Basin," Papers 0082, Boston University - Industry Studies Programme.
  7. Hahn, Robert W, 1989. "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 95-114, Spring.
  8. Christainsen, Gregory B. & Haveman, Robert H., 1981. "The contribution of environmental regulations to the slowdown in productivity growth," Journal of Environmental Economics and Management, Elsevier, vol. 8(4), pages 381-390, December.
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