Interlinked Firms and the Consequences of Piecemeal Regulation

44 Pages Posted: 16 Jan 2018

See all articles by Christopher Hansman

Christopher Hansman

Imperial College Business School

Jonas Hjort

Columbia Business School - Finance and Economics

Gianmarco León Ciliotta

Universitat Pompeu Fabra and Barcelona GSE; Barcelona Graduate School of Economics (Barcelona GSE); Institute for Political Economy and Governance, Barcelona; CEPR

Date Written: January 2018

Abstract

Industrial regulations are typically designed with a particular policy objective and set of firms in mind. When input-output linkages connect firms across sectors, such "piecemeal" regulations may worsen externalities elsewhere in the economy. Using daily administrative and survey data, we show that in Peru's industrial fishing sector, the world's largest, air pollution from downstream (fishmeal) manufacturing plants caused 55,000 additional respiratory hospital admissions per year as a consequence of the introduction of individual property rights (over fish) upstream. The upstream regulatory change removed suppliers' incentive to "race" for the resource and enabled market share to move from inefficient to efficient downstream firms. As a result, the reform spread downstream production out across time, as predicted by a conceptual framework of vertically connected sectors. We show evidence consistent with the hypothesis that longer periods of moderate air polluting production can be worse for health than concentrating a similar amount of production in shorter periods. Our findings demonstrate the risks of piecemeal regulatory design in interlinked economies.

Keywords: air pollution, Coasian solutions, externalities, Industrial regulations

JEL Classification: D2, I1, L5, O1

Suggested Citation

Hansman, Christopher and Hjort, Jonas and León Ciliotta, Gianmarco, Interlinked Firms and the Consequences of Piecemeal Regulation (January 2018). CEPR Discussion Paper No. DP12584, Available at SSRN: https://ssrn.com/abstract=3102220

Christopher Hansman (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://chrishansman.com/

Jonas Hjort

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Gianmarco León Ciliotta

Universitat Pompeu Fabra and Barcelona GSE ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(+34) 93 542-1757 (Phone)
(+34) 93 542-1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/gianmarcoleon/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas 25-27
Barcelona, Catalonia 08014
Spain

Institute for Political Economy and Governance, Barcelona ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

CEPR ( email )

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
204
PlumX Metrics