Strategic Response to Regulatory Thresholds: Evidence from the Massachusetts Toxics Use Reduction Act

Abstract

Many government programs contain regulatory thresholds below which entities are not subject to the regulation. This paper empirically examines the strategic response to regulatory thresholds using data from the Massachusetts Toxics Use Reduction Act. To what extent do manufacturing facilities adjust their behavior to ensure that they are below the thresholds for reporting chemical use and release under Massachusetts' law? To what extent does this strategic response effect validity of the inferences using these data? The results suggest that the bias introduced by reporting thresholds may be significant. Up to 40 percent of the observed decline in reported toxic releases in Massachusetts may be attributed to strategic responses to the reporting thresholds. In addition, quartile rankings of facilities based on reported releases may be in error 45 percent of the time when behavior around the reporting thresholds is not taken into account. Because the regulatory thresholds for TURA are similar to many other state and federal "right-to-know" programs, including the widely used Toxics Release Inventory, the fact that strategic response to regulatory thresholds in TURA are significant suggests that such strategic responses may affect validity of environmental right-to-know data more broadly.

Keywords: Environmental data, right-to-know, toxics release inventory

JEL Classification: Q28, L50, H7