Environmental Regulation and Industry Dynamics

Aditi Sengupta

No 903, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: We examine the effect of more stringent environmental regulation on the dynamic structure of a deterministic competitive industry with endogenous entry and exit where firms invest in reduction of their future compliance cost. The level of regulation is exogenously fixed and constant over time. The compliance cost of a firm at each point of time depends on its current output, its accumulated past investment and the level of regulation. We outline sufficient conditions under which industries with more stringent regulation are associated with higher investment in compliance cost reduction and higher shake-out of firms over time; the opposite may be true under certain circumstances. Our analysis indicates that the effect of a change in regulation on market structure may be lagged over time.

Keywords: Environmental regulation; Industry dynamics; Investment; Shake-out. (search for similar items in EconPapers)
JEL-codes: L51 L52 O33 Q52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2009-06
New Economics Papers: this item is included in nep-com, nep-env, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Environmental Regulation and Industry Dynamics (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:smu:ecowpa:0903

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