The Clean Air Act Amendments and Firm Investment in Pollution Abatement Equipment
The command-and-control approach to environmental regulation requires that firms install prescribed technologies to meet specified goals. However, environmental regulations change frequently; in addition, the enforcement agency cannot perfectly monitor firm compliance. We examine the impact of uncertainties surrounding the enactment and the enforcement of the Clean Air Act Amendments of 1990 on firm investment in air pollution abatement equipment. We find that our measures of the likelihood ofCAAA passage clearly affect a firm’s investment in pollution equipment. Enforcement actions also affect a firm’s investment, but these effects are weaker and are statistically significant only after enactment.