The Differential Effect of Regulation across Plant Size: Comment on Pashigian

I SHOW that the conclusion of a recent article by B. Peter Pashigian, that environmental regulatory costs have fallen more heavily on smaller than on larger businesses, is not supported by the statistical evidence he presents and is contradicted by data on the actual distribution of pollution abatement costs across plant and firm sizes.l Section II shows that average pollution abatement costs per employee are substantially smaller for smaller plants and firms than for larger plants and firms. Section III shows that Pashigian's statistical analysis does not support his conclusion that small businesses have borne the brunt of environmental regulations. Section IV presents conclusions. Before proceeding, it will prove useful to clarify why the incidence of regulatory costs across plant or firm size is of interest and to summarize Pashigian's analysis.2 The differential effect of regulation across plant or firm size is important for at least three reasons. First, when there are scale economies in regulatory compliance and when certain other assumptions are met, optimal regulatory policy may require imposing a lighter regulatory burden on