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Estimating the Effects of Regulation When Treated and Control Firms Compete: A New Method with Application to the EU ETS

Author

Listed:
  • Geoffrey Barrows

  • Raphael Calel
  • Martin Jégard

  • Hélène Ollivier

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This paper presents a method for estimating treatment effects of regulations when treated and control firms compete on the output market. We develop a GMM estimator that recovers reduced-form parameters consistent with a model of differentiated product markets with multi-plant firms, and use these estimates to evaluate counterfactual revenues and emissions. Our procedure recovers unbiased estimates of treatment effects in Monte Carlo experiments, while difference-in-differences estimators and other popular methods do not. In an application, we find that the European carbon market reduced emissions at regulated plants without undermining revenues of regulated firms, relative to an unregulated counterfactual.

Suggested Citation

  • Geoffrey Barrows & Raphael Calel & Martin Jégard & Hélène Ollivier, 2024. "Estimating the Effects of Regulation When Treated and Control Firms Compete: A New Method with Application to the EU ETS," Working Papers hal-04378537, HAL.
    • Handle: RePEc:hal:wpaper:hal-04378537
    DOI: 10.2139/ssrn.4459815
    Note: View the original document on HAL open archive server: https://hal.science/hal-04378537v1
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    Cited by:

    1. Chen, Yi-Fan, 2025. "Cap-and-trade system, firm selection, and emission intensity," Energy Economics, Elsevier, vol. 145(C).
    2. Rottner, Elisa, 2023. "Do climate policies lead to outsourcing? Evidence from firm-level imports," ZEW Discussion Papers 23-070, ZEW - Leibniz Centre for European Economic Research.
    3. Curuk, Malik & Rozendaal, Rik & Wendler, Tobias, 2025. "Gender differences in the employment effects of climate policy," Energy Economics, Elsevier, vol. 145(C).

    More about this item

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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