IDEAS home Printed from
   My bibliography  Save this book chapter

Costs of Air Quality Regulation

In: Behavioral and Distributional Effects of Environmental Policy


  • Randy A. Becker
  • J. Vernon Henderson


This paper explores some costs associated with environmental regulation. We focus on regulation pertaining to ground-level ozone (O3) and its effects on two manufacturing industries -- industrial organic chemicals (SIC 2865-9) and miscellaneous plastic products (SIC 308). Both are major emitters of volatile organic compounds (VOC) and nitrogen oxides (Nox), the chemical precursors to ozone. Using plant-level data from the Census Bureau's Longitudinal Research Database (LRD), we examine the effects of regulation on the timing and magnitudes of investments by firms and on the impact it has had on their operating costs. As an alternative way to assess costs, we also employ plant-level data from the Pollution Abatement Costs and Expenditures (PACE) survey. Analyses employing average total cost functions reveal that plants' production costs are indeed higher in (heavily-regulated) non-attainment areas relative to (less-regulated) attainment areas. This is particularly true for younger plants, consistent with the notion that regulation is most burdensome for new (rather than existing) plants. Cost estimates using PACE data generally reveal lower costs. We also find that new heavily-regulated plants start our much larger than less-regulated plants, but then do not invest as much. Among other things, this highlights the substantial fixed costs involved in obtaining expansion permits. We also discuss reasons why plants may restrict their size.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Randy A. Becker & J. Vernon Henderson, 2001. "Costs of Air Quality Regulation," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 159-186 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:10608

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Randy Becker & Vernon Henderson, 2000. "Effects of Air Quality Regulations on Polluting Industries," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 379-421, April.
    2. Virginia D. McConnell & Robert M. Schwab, 1990. "The Impact of Environmental Regulation on Industry Location Decisions: The Motor Vehicle Industry," Land Economics, University of Wisconsin Press, vol. 66(1), pages 67-81.
    3. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
    4. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September.
    5. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October.
    6. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
    7. repec:fth:harver:1487 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:10608. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.