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Does the impact of environmental regulation differ by plant vintage and technology? We answer this question using annual Census Bureau information on 116 pulp and paper mills' vintage, technology, productivity, and pollution abatement operating costs for 1979-1990. We find a significant negative relationship between pollution abatement costs and productivity levels. This is due almost entirely to integrated mills (those incorporating a pulping process), where a one standard deviation increase in abatement costs is predicted to reduce productivity by 5.4 percent. Older plants appear to have lower productivity but are less sensitive to abatement costs, perhaps due to 'grandfathering' of regulations. Mills which undergo renovations are also less sensitive to abatement costs, although these vintage and renovation results are not generally significant. We find similar results using a log-linear version of a three input Cobb-Douglas production function in which we include our technology, vintage, and renovation variables. Sample calculations of the impact of pollution abatement on productivity show the importance of allowing for differences based on plant technology. In a model incorporating technology interactions we estimate that total pollution abatement costs reduce productivity levels by an average of 4.7 percent across all the plants. The comparable estimate without technology interactions is 3.3 percent, approximately 30% lower.

We test several hypotheses related to technology choice in the paper industry and the investment decision for existing plants, based on conversations with people and visits to paper mills. Our analysis uses technology choice data for 686 paper mills and annual investment data for 116 mills.Technology choice is influenced by environmental regulation. New mills in states with strict environmental regulations tend not to employ more polluting technologies involving pulping. Differences between air and water pollution regulations also emerge, with the dirtiest technology in each medium avoiding states with the strictest regulations. The impacts are sizable: a one standard deviation increase in stringency is associated with several percentage point reductions in the probability of choosing a dirty technology.State regulatory stringency and plant technology have little or no effect on annual investment spending at existing plants. However, pollution abatement investment is significantly related to productive (non-abatement) investment. Plants with high abatement investment spend less on productive capital. The magnitude of the impact corresponds to nearly complete crowding out of productive investment by abatement investment. Examining investment timing, we find that abatement and productive investment occurs in the same years, consistent with the high cost of shutting down a paper mill for renovations.

We examine the determinants of environmental regulatory activity (inspections and enforcement actions) and levels of air and water pollution for 409 US pulp and paper mills, using data for 1985-1997. We focus on the benefits to the surrounding population from pollution abatement. Plants with larger benefits emit less pollution, as do those with more kids and elders nearby. Plants in poor areas emit more pollution, though (surprisingly) we find less pollution in minority areas. Out-of-state neighbors seem to count less than in-state ones, although this effect diminishes if the bordering state's Congressional delegation is strongly pro-environment. We use 'spatially lagged' instrumental variables to control for the potential endogeneity of which individuals choose to locate near the plant. The results for regulatory activity are noticeably less significant than the emissions results. r

In this paper we investigate the impact of environmental regulation on productivity using a Cobb-Douglas production function framework. Estimating the effects of regulation on productivity can be done with a top-down approach using data for broad sectors of the economy, or a more disaggregated bottom-up approach. Our study follows a bottom-up approach using data from the U.S. paper, steel, and oil industries. We measure environmental regulation using plant-level information on pollution abatement expenditures, which allows us to distinguish between productive and abatement expenditures on each input. We use annual Census Bureau information (1979-1990) on output, labor, capital, and material inputs, and pollution abatement operating costs and capital expenditures for 68 pulp and paper mills, 55 oil refineries, and 27 steel mills. We find that pollution abatement inputs generally contribute little or nothing to output, especially when compared to their 'productive' equivalents. Adding an aggregate pollution abatement cost measure to a Cobb-Douglas production function, we find that a $1 increase in pollution abatement costs leads to an estimated productivity decline of $3.11, $1.80, and $5.98 in the paper, oil, and steel industries respectively. These findings imply substantial differences across industries in their sensitivity to pollution abatement costs, arguing for a bottom-up approach that can capture these differences. Further differentiating plants by their production technology, we find substantial differences in the impact of pollution abatement costs even within industries, with higher marginal costs at plants with more polluting technologies. Finally, in all three industries, plants concentrating on change-in-production-process abatement techniques have higher productivity than plants doing predominantly end-of-line abatement, but also seem to be more affected by pollution abatement operating costs. Overall, our results point to the importance using detailed, disaggregated analyses, even below the industry level, when trying to model the costs of forcing plants to reduce their emissions.

This study tests the impact of OSHA enforcement on workplace injuries. Using data on injuries and OSHA inspections for a panel of 6,842 large manufacturing plants between 1979 and 1985, we find significant specific deterrence effects. Inspections imposing penalties induce a 22% decline in injuries in the inspected plant during the following few years. We suggest that narrow deterrence perspectives have led to unduly pessimistic assumptions about enforcement effectiveness and that a managerial attention model is more consistent with our findings.In a technical appendix we describe the Chamberlain technique, a powerful analytic approach for panel data that provides tests and corrections for potential biases endemic in enforcement studies, including unmeasured heterogeneity among units, serially correlated dependent variables, and endogeneity of inspections. We argue that more empirical studies of enforcement impacts are necessary to provide an appropriate perspective for descriptive and analytic studies appraising regulatory behavior.