CES-WP-01-18

When Do Firms Shift Production Across States to Avoid Environmental Regulation?

Ronald Shadbegian, Wayne Gray

December 02, 2001

This paper examines whether a firm's allocation of production across its plants responds to the environmental regulation faced by those plants, as measured by differences in stringency across states. We also test whether sensitivity to regulation differs based on differences across firms in compliance behavior and/or differences across states in industry importance and concentration. We use Census data for the paper and oil industries to measure the share of each state in each firm's production during the 1967-1992 period. We use several measures of state environmental stringency and test for interactions between regulatory stringency and three factors: the firm's overall compliance rate, a Herfindahl index of industry concentration in the state, and the industry’s share in the state economy. We find significant results for the paper industry: firms allocate smaller production shares to states with stricter regulations. This impact is concentrated among firms with low compliance rates, suggesting that low compliance rates are due to high compliance costs, not low compliance benefits. The interactions between stringency and industry characteristics are less often significant, but suggest that the paper industry is more affected by regulation where it is larger or more concentrated. Our results are weaker for the oil industry, reflecting either less opportunity to shift production across states or a greater impact of environmental regulation on paper mills.

View Paper   36 Pages 89193 Bytes

CES-WP-01-17

Marshall's Scale Economies

Vernon Henderson

December 01, 2001

In this paper, using panel data, I estimate plant level production functions that include variables that allow for two types of scale externalities which plants experie nce in their local industrial environments. First are externalities from other plants in the same industry locally, usually called localization economies or, in a dynamic context, Marshall, Arrow, Romer [MAR] economies. Second are externalities from the scale or diversity of local economic activity outside the own industry involving some type of cross- fertilization, usually called urbanization economies or, in a dynamic context, Jacobs economies. Estimating production functions for plants in high tech industries and in capital goods, or machinery industries, I find that local own industry scale externalities, as measured specifically by the count of other own industry plants locally, have strong productivity effects in high tech but not machinery industries. I find evidence that single plant firms both benefit more from and generate greater external benefits than corporate plants. On timing, I find evidence that high tech single plant firms benefit from the scale of past own industry activity, as well as current activity. I find no evidence of urbanization economies from the diversity of local economic activity outside the own industry and limited evidence of urbanization economies from the overall scale of local economic activity.

View Paper   36 Pages 104201 Bytes

CES-WP-01-16

The Demand for Human Capital: A Microeconomic Approach

Michael Gort, Seong-Hoon Lee

December 01, 2001

We propose a model for explaining the demand for human capital based on a CES production function with human capital as an explicit argument in the function. The resulting factor demand model is tested with data on roughly 6,000 plants from the Census Bureau’s Longitudinal Research Database. The results show strong complementarity between physical and human capital. Moreover, the complementarity is greater in high than in low technology industries. The results also show that physical capital of more recent vintage is associated with a higher demand for human capital. While the age of a plant as a reflection of learning-by-doing is positively related to the accumulation of human capital, this relation is more pronounced in low technology industries.

View Paper   27 Pages 95396 Bytes

CES-WP-01-15

Outsourcing Business Service and the Scope of Local Markets

Yukako Ono

December 01, 2001

This paper examines outsourcing to test whether productivity-enhancing specialization is facilitated in bigger cities. First, the paper provides a theoretical model which shows that greater local demand for a given input promotes the entry of suppliers into a city; the increased number of suppliers then results in lower outsourcing prices and a higher use of outsourcing by final producers, therefore reducing the final producers' production costs. I then test the predictions of the model by examining manufacturing plants' practices of outsourcing business services, by using plant-level data from the 1992 Annual Survey of Manufactures. The empirical results show that an exogenous increase in local demand promotes the entry of service suppliers and increases a firm's probability of outsourcing for white-collar services. In particular, I found that doubling the intensity of the use of a service in a U.S. county, which can be attributed to the industrial composition of the county, results in a 7% to 25% increase in the probability of outsourcing.

View Paper   35 Pages 393351 Bytes

CES-WP-01-14

The Utilization of Different Modes of Residence and Health Services by the Elderly

Kenneth Couch, Alice Zawacki

December 01, 2001

Demand for health services are examined among Americans ages 65 and older using the Medical Expenditure Panel Survey. Analyses are provided of mode of residence, demand for paid health services in private settings, and the choice of type of nursing home using a common set of explanatory variables. The research shows that age, Medicare coverage, and the use of assistive technology are the strongest predictors of mode of residence. The second analysis shows that total expenditures for paid home health care (HHC) and hospital care do not decrease as expected when the percentage paid by individuals and/or their families increases. Finally, the third analysis suggests that the distribution of nursing home (NH) services is related to ability to pay.

View Paper   59 Pages 174112 Bytes

CES-WP-01-13

Diversification Discount or Premium? New Evidence from BITS Establishment-Level Data

Belen Villalonga

December 01, 2001

This paper examines whether the finding of a diversification discount in U.S. stock markets is only a data artifact. Segment data may give rise to biased estimates of the value effect of diversification because segments are defined inconsistently across firms, and that inconsistency does not occur at random. I use a new establishment-level database that covers the whole U.S. economy (BITS) to construct business units that are more consistently and objectively defined across firms, and thus more comparable. Using a common methodological approach on a sample of firms which exhibit a diversification discount according to segment data, I find that, when BITS data are used, diversified firms actually trade at a significant average premium. The premium is robust to variations in the method, sample, business unit definition, and measures of excess value and diversification used.

View Paper   40 Pages 114165 Bytes

CES-WP-01-12

Air Pollution Abatement Costs Under the Clean Air Act: Evidence from the PACE Survey

Randy Becker

December 01, 2001

This paper uses establishment-level data from the U.S. Census Bureau’s Pollution Abatement Costs and Expenditures (PACE) survey to investigate the effects of air quality regulation on the air pollution abatement capital expenditures and operating costs of manufacturing plants from 1979-1988. Results, based on some 90,000 observations, show that heavy emitters of the “criteria” air pollutants (covered under the Clean Air Act) had significantly larger APA costs, and those subject to greater “local” regulation (due to county NAAQS non-attainment) had expenditures that were greater still. The local regulation of a particular air pollutant generally resulted in hundreds of thousands of dollars (or more) of additional costs, with larger establishments and capital expenditures disproportionately affected. Federal and state environmental standards appear to have played a notable role, particularly in industries producing chemicals, petroleum, primary metals, and nonmetallic minerals. The findings of this paper support those of several recent studies.

View Paper   55 Pages 225330 Bytes

CES-WP-01-11

U.S. Productivity and Electronic Processes in Manufacturing

B.K. Atrostic, John Gates

October 01, 2001

Recent studies argue that the use of information technology is a significant source of U.S. productivity growth. Official U.S. data on this use have been scarce. New official data on the use of electronic business processes (business processes such as procurement, payroll, inventory, etc.,conducted over computer networks) in the manufacturing sector of the United States were recently released. Preliminary estimates based on these data are consistent with some results in the literature. However, they also raise questions requiring additional detailed micro data analysis.

View Paper   14 Pages 53624 Bytes

CES-WP-01-10

The Life Cycles of Industrial Plants

Seong-Hoon Lee, Michael Gort

October 01, 2001

The paper presents a dynamic programming model with multiple classes of capital goods to explain capital expenditures on existing plants over their lives. The empirical specification shows that the path of capital expenditures is explained by (a) complementarities between old and new capital goods, (b) the age of plants, (c) an index that captures the rate of technical change and (d) the labor intensiveness of a plant when it is newly born. The model is tested with Census data for roughly 6,000 manufacturing plants that were born after 1972.

View Paper   27 Pages 328405 Bytes

CES-WP-01-19

Civic Community in Small-Town America: How Civic Welfare is Influenced by Local Capitalism and Civic Engagement

Alfred Nucci, Thomas Lyson, Michael Irwin, Charles Tolbert

September 01, 2001

View Paper   32 Pages 76220 Bytes