Do Environmental Regulations Cause Firms to Exit the Market? Evidence from Underground Storage Tank (UST) Regulations

38 Pages Posted: 11 Sep 2008 Last revised: 8 May 2012

See all articles by haitao Yin

haitao Yin

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Matthew W. White

University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER)

Date Written: October 19, 2007

Abstract

This paper examines whether Underground Storage Tank (UST) regulations had uneven impacts on petroleum retail outlets, and explores the reasons why some outlets are more likely to exit the market than others under UST regulations. The analyses suggest that both the economies of scale and the liquidity constraints arguments can explain the uneven impact UST regulations had on different petroleum retail outlets. Economies of scale give large outlets a greater competitive advantage because it is more difficult for small outlets to pass on compliance costs to customers. Liquidity constraints make outlets owned by small firms more vulnerable to UST regulations because small firms do not have the financial capability to replace or upgrade equipment as required by UST technical standards. This suggests that small businesses have more difficulties competing with large businesses under environmental regulations.

Keywords: Environmental Regulations, Economies of Scale, Liquidity Constraints, Underground Storage Tank

JEL Classification: Q28, L51, D21

Suggested Citation

Yin, Haitao and Kunreuther, Howard C. and White, Matthew Wallace, Do Environmental Regulations Cause Firms to Exit the Market? Evidence from Underground Storage Tank (UST) Regulations (October 19, 2007). Available at SSRN: https://ssrn.com/abstract=1265611 or http://dx.doi.org/10.2139/ssrn.1265611

Haitao Yin (Contact Author)

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Howard C. Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States
212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

Matthew Wallace White

University of Pennsylvania - Business & Public Policy Department ( email )

The Wharton School
3100 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104-6372
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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