Premium
Averting Regulatory Enforcement: Evidence from New Source Review
Author(s) -
Keohane Nathaniel O.,
Mansur Erin T.,
Voynov Andrey
Publication year - 2009
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2009.00208.x
Subject(s) - enforcement , clean air act , agency (philosophy) , business , electricity , regulatory agency , action (physics) , natural resource economics , economics , engineering , law , ecology , air pollution , political science , biology , welfare economics , philosophy , physics , electrical engineering , epistemology , quantum mechanics
This paper explores firms' response to regulatory enforcement. New Source Review (NSR), a provision of the Clean Air Act, imposes stringent emissions limitations on significantly modified older power plants. In 1999, the Environmental Protection Agency (EPA) sued owners of 46 plants for NSR violations. We study how electricity companies respond to both the perceived threat of future action, and the action itself. A discrete choice model estimates plants likelihood of being named in lawsuits increases with large historic emissions and investments. On the eve of the lawsuits, emissions at plants with a one standard deviation greater probability of being sued fell approximately 10%.