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Averting Enforcement: Strategic Response to the Threat of Environmental Regulation

25 Pages Posted: 6 Oct 2006  

Nathaniel O. Keohane

Yale University - School of Management

Erin T. Mansur

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Andrey Voynov

Yale University - School of Forestry and Environmental Studies

Date Written: October 9, 2006

Abstract

This paper uses data from the U.S. electric power industry to explore the strategic responses of regulated firms to government enforcement. We focus on the enforcement of New Source Review, a provision of the Clean Air Act that imposes stringent emissions limitations on substantially modified older power plants. Starting in late 1999, the EPA sued the owners of 46 power plants for NSR violations. This paper explores how electric utilities responded to both the perceived threat of future action, and the action itself. We find that the threat of action did have a significant effect on emissions: plants that were likely to be named in the lawsuits (as determined by our discrete choice model of the lawsuit decision) reduced their emissions by about 17 percent on the eve of the lawsuits. After the lawsuits, we find no significant difference between those plants sued and other relatively dirty coal-fired power plants.

Keywords: pollution regulation, enforcement, New Source Review, electricity industry

JEL Classification: L51, L94, Q58, Q52

Suggested Citation

Keohane, Nathaniel O. and Mansur, Erin T. and Voynov, Andrey, Averting Enforcement: Strategic Response to the Threat of Environmental Regulation (October 9, 2006). Available at SSRN: https://ssrn.com/abstract=935083 or http://dx.doi.org/10.2139/ssrn.935083

Nathaniel O. Keohane

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Erin T. Mansur (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrey Voynov

Yale University - School of Forestry and Environmental Studies ( email )

New Haven, CT 06511
United States

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