When Do Firms Shift Production Across State to Avoid Environmental Regulation?

Ron Shadbegian and Wayne Gray

No 200202, NCEE Working Paper Series from National Center for Environmental Economics, U.S. Environmental Protection Agency

Abstract: This paper examines whether a firm's allocation of production across its plants responds to the environmental regulation faced by those plants, as measured by differences in stringency across states. We also test whether sensitivity to regulation differs based on differences across firms in compliance behavior and/or differences across states in industry importance and concentration. We use Census data for the paper and oil industries to measure the share of each state in each firm's production during the 1967-1992 period. We use several measures of state environmental stringency and test for interactions between regulatory stringency and three factors: the firm's overall compliance rate, a Herfindahl index of industry concentration in the state, and the industry’s share in the state economy. We find significant results for the paper industry: firms allocate smaller production shares to states with stricter regulations. This impact is concentrated among firms with low compliance rates, suggesting that low compliance rates are due to high compliance costs, not low compliance benefits. The interactions between stringency and industry characteristics are less often significant, but suggest that the paper industry is more affected by regulation where it is larger or more concentrated. Our results are weaker for the oil industry, reflecting either less opportunity to shift production across states or a greater impact of environmental regulation on paper mills.

Keywords: Environmental Regulation; state regulatory stringency; Procution allocation; compliance (search for similar items in EconPapers)
Pages: 38 pages
Date: 2002-02, Revised 2002-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: When Do Firms Shift Production across States to Avoid Environmental Regulation? (2024)
Working Paper: When Do Firms Shift Production Across States to Avoid Environmental Regulation? (2002)
Working Paper: When Do Firms Shift Production Across States to Avoid Environmental Regulation? (2001)
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