Economics

Environmental Regulation, Investment Timing, and Technology Choice

Document Type

Article

Abstract

We test whether environmental regulation affects investment decisions, using Census data for individual paper mills. New mills in states with strict environmental regulations choose cleaner production technologies, with differences in air and water pollution regulation also influencing technology choice. Examining investment allocation across existing plants, we find that abatement and productive investment tend to be scheduled together. However, plants with high abatement investment over the entire period spend significantly less on productive capital. This seems to reflect both environmental investment ‘crowding out* productive investment within a plant, and firms shifting investment towards plants facing less stringent abatement requirements.

Publication Title

The Journal of Industrial Economics

Publication Date

2003

Volume

46

Issue

2

First Page

235

Last Page

256

ISSN

1467-6451

DOI

10.1111/1467-6451.00070

Keywords

environmental regulation, paper mills, technology choice

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