The Costs of Environmental Regulation in a Concentrated Industry
By Stephen Ryan. 2012
733 citations recorded by the source corpus.
The typical cost analysis of an environmental regulation consists of an engineering estimate of the compliance costs. In industries where fixed costs are an important determinant of market structure this static analysis ignores the dynamic effects of the regulation on entry, investment, and market power. I evaluate the welfare costs of the 1990 Amendments to the Clean Air Act on the US Portland cement industry, accounting for these effects through a dynamic model of oligopoly in the tradition of Ericson and Pakes \citeyearpar{pakes-ericson:95}. Using a recently developed two-step estimator, I recover the entire cost structure of the industry, including the distribution of sunk entry costs and adjustment costs of investment. I find that the Amendments have significantly increased the sunk cost of entry. I solve for the Markov perfect Nash equilibrium (MPNE) of the model and simulate the welfare effects of the Amendments. A static analysis misses the welfare penalty on consumers, and obtains the wrong sign on the welfare effects on incumbent firms
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/d198bad10aba170b34b3eeb42d3cdc490d479b8b
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Kengo Kato
- Stephen Ryan
- Misato Sato
- Antoine Dechezleprêtre
- Victor Chernozhukov
- D. Chetverikov
- Paul B. Ellickson
- Reed Walker
Citations in the corpus
- Estimating Dynamic Models of Imperfect Competition (2004, unknown): “In particular, we hope our approach will facilitate future empirical work on dynamic oligopoly, such as the recent work of Ryan (2006) .”
- Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition (2016, unknown): “…empirical researchers have recently examined the impact of environmental regulations on entry, investment and market power in the cement industry (Ryan, 2012), the eect of demand fluctuations in the concrete industry (Collard-Wexler, 2013), and the impact of increased royalty fees on the variety…”
- Inference on Causal and Structural Parameters using Many Moment Inequalities (2013, background): “…as a determinant of the market structure in the US airline industry,3 Holmes (2011) who estimated the dynamic model of the Wal-Mart expansion,4 and Ryan (2012) who estimated the welfare costs of the 1990 Amendments to the Clean Air Act on the U.S. Portland cement industry.5 2A small number of…”
- The Transitional Costs of Sectoral Reallocation: Evidence From the Clean Air Act and the Workforce* (2013, background): “Moreover, shifts in the costs of entry and investment can lead to markets with fewer firms and lower production (Ryan 2011).”