The Impact of Pollution Control on Technology and Efficiency: A Stochastic Distance Function Approach

Empirical studies using econometric models to analyse the effects of environmental regulations on production technology and the cost-effectiveness of the regulatory system have been relatively scarce. In contrast, there is extensive theoretical literature on comparing the performance of different pollution control instruments (for example, Baumol and Oates, 1988; Tietenberg 1990). In general, the debate has remained largely on the theoretical level because of the lack of empirical research. However, in the past decade or so there have been a number of empirical studies which have attempted to analyse the response of firms to environmental regulations (for example, Barbera and McConnell 1990; Conrad and Morrison 1989; Fare et al., 1986, 1989a, 1989b, 1993; Gollop and Roberts 1983; Jorgenson and Wilcoxen, 1990; Pittman, 1981, 1983; Sims, 1979). These studies have examined various effects of pollution-control policy, including the direct impact of regulation on firms because of the diversion of resources into abatement capital and an indirect effect because of changes in the production process and usage of inputs. On the other hand, some of these studies have also analysed the cost-effectiveness of the regulatory system itself (Pittman, 1981; Fare et al., 1993). For the most part, these studies are based on industry-level data. This is an important shortcoming, as regulations are usually set at the plant level.