Working Paper: NBER ID: w8705
Authors: Wayne B. Gray; Ronald J. Shadbegian
Abstract: This paper takes a new approach to testing the impact of state environmental regulatory stringency on firms' location decisions, focusing on firms' allocation of production across states. We use Census data for the paper industry to measure the share of each firm's production in each state during 1967-2002. We use a conditional logit model, controlling for a variety of state characteristics that influence firm costs and revenues, and testing several measures of state environmental stringency. Firms allocate significantly smaller production shares to states with stricter regulations, but there is significant heterogeneity across firms in their sensitivity to regulatory stringency. Firms with low compliance rates are more sensitive than firms with high compliance rates, consistent with a model where compliance rates are driven by differences across firms in the costs of compliance, rather than in the benefits of compliance.
Keywords: Environmental regulation; Production allocation; Firm behavior
JEL Codes: D20; Q20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stricter environmental regulations (Q52) | Smaller production shares allocated to states (H77) |
| Low compliance rates (H26) | Increased sensitivity to regulatory stringency (L51) |
| Compliance costs (Q52) | Avoidance of high-stringency states (H73) |
| High compliance rates (H26) | Preference for more stringent states (H73) |