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Estimating the Hidden Costs of Environmental Regulation

Author

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  • Satish Joshi
  • Ranjani Krishnan
  • Lester Lave

Abstract

This paper examines whether accounting systems identify all the costs of environmental regulation. We estimate the relation between the “visible” cost of regulatory compliance, i.e., costs that are correctly classified in firms’ accounting systems, and “hidden” costs i.e., costs that are embedded in other accounts. We use plant-level data from 55 steel mills to estimate hidden costs, and we follow up with structured interviews of corporate-level managers and plant-level accountants. Empirical results show that a $1 increase in the visible cost of environmental regulation is associated with an increase in total cost (at the margin) of $10-11, of which $9-10 are hidden in other accounts. The findings suggest that inappropriate identification and accumulation of the costs of environmental compliance are likely to lead to distorted costs in firms subject to environmental regulation.

Suggested Citation

  • Satish Joshi & Ranjani Krishnan & Lester Lave, 2002. "Estimating the Hidden Costs of Environmental Regulation," Working Papers 02-10, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:02-10
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    File URL: https://www2.census.gov/ces/wp/2002/CES-WP-02-10.pdf
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    References listed on IDEAS

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    1. Wayne B Gray & Ronald J Shadbegian, 1993. "Environmental Regulation And Manufacturing Productivity At The Plant Level," Working Papers 93-6, Center for Economic Studies, U.S. Census Bureau.
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    4. 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.
    5. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 77(5), pages 998-1006, December.
    6. Guilkey, David K & Lovell, C A Knox & Sickles, Robin C, 1983. "A Comparison of the Performance of Three Flexible Functional Forms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 591-616, October.
    7. Byron, Ray P & Bera, Anil K, 1983. "Least Squares Approximations to Unknown Regression Functions: A Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 255-260, February.
    8. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
    9. 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.
    10. repec:bla:joares:v:32:y:1994:i::p:177-209 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Collins C. Ngwakwe, 2009. "Justifying Environmental Cost Allocation in a Multiple Product Firm: A Case Study," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(4), pages 403-420.
    2. Shadbegian, Ronald J. & Gray, Wayne B., 2005. "Pollution abatement expenditures and plant-level productivity: A production function approach," Ecological Economics, Elsevier, vol. 54(2-3), pages 196-208, August.
    3. Simon Alcouffe & Nicolas Berland & Benjamin Dreveton & Moez Essid, 2010. "An empirical study of environmental cost drivers," Post-Print halshs-00530528, HAL.
    4. Eliška Vejchodská & Lenka Slavíková & Vítězslav Malý, 2016. "Evaluating the Regulatory Burden: Pollutant Release and Transfer Reporting Costs," Prague Economic Papers, University of Economics, Prague, vol. 2016(6), pages 671-685.
    5. repec:spr:agfoec:v:5:y:2017:i:1:d:10.1186_s40100-017-0080-2 is not listed on IDEAS
    6. Alina-Mihaela Babonea & Andreea Paula Dumitru, 2012. "Performance Indicators In Csr In Romania - A Link To The Green Economy," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 410-416, November.
    7. Rich Iovanna & Kelly Maguire & Al McGartland, 2003. "The Pace of PACE at the Environmental Protection Agency," NCEE Working Paper Series 200307, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
    8. Eliška Vejchodská & Lenka Slavíková & Vítězslav Malý, . "Evaluating the Regulatory Burden: Pollutant Release and Transfer Reporting Costs," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-15.
    9. Ragasa, Catherine & Thornsbury, Suzanne & Joshi, Satish, 2013. "Sustainability of EU Food Safety Certification: A survival analysis of firm decisions:," IFPRI discussion papers 1296, International Food Policy Research Institute (IFPRI).
    10. Vanassche, Stella & Vranken, Liesbet & Vercaemst, Peter, 2009. "The impact of environmental policy on industrial sectors: empirical evidence from 14 European Countries," Working Papers 2009/20, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    11. Michael Gallaher & Cynthia Morgan & Ronald J. Shadbegian, 2008. "Redesign of the 2005 Pollution Abatement Costs and Expenditure Survey," NCEE Working Paper Series 200801, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jan 2008.
    12. Dennis M. Patten, 2013. "Lessons from the Third Wave: A reflection on the rediscovery of Corporate Social Responsibility by the mainstream accounting research community," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2013(2), pages 9-26.
    13. Teresa Eugénio & Isabel Costa Lourenço & Ana Isabel Morais, 2010. "Recent developments in social and environmental accounting research," Social Responsibility Journal, Emerald Group Publishing, vol. 6(2), pages 286-305, June.

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    Keywords

    CES; economic; research; micro; data; microdata; chief; economist;

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