Industrial Productivity and Air Quality Regulation

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9422440 Henderson This project has two interrelated parts. The first examines the effect of air quality regulation on decisions of firms concerning the location of their plants, the scheduling of production, and the size of their plants. The project tests the hypotheses that implementation of air quality regulations has led firms to move plants from more polluted locations to less polluted locations, move plants from states with more intense implementation of regulations to those with easier conditions, implicitly reschedule economic activity over the course of the day to help minimize extreme value air quality readings, and downsize plants to avoid regulatory scrutiny. The results of this study will improve our understanding of the unintended and overall effects of environmental regulatory activity. Specifically, the investigation will help show whether the Clean Air Act reduces emissions or just moves them around. The second part involves a more extensive examination of plant productivity determinants and location decisions of firms. The focus of the work is first on establishing the existence of dynamic externalities which help bind clusters of plants to the same locations over the years and then on quantifying the magnitude and length (lag structure) to dynamic externalities. Dynamic externalities are a critical component to determining the mobility and productivity of plants and to understanding the organization of production across space and within corporations. This project uses EPA and County Business Patterns data collected under prior NSF projects and longitudinal individual firm and plant data, available through the EPA and through the Center for Economic Studies (CES) of the Census Bureau in the Research Data Center at the Boston regional office.