A Displacement Model of Regulatory Compliance and Costs

Economists often speculate about the impacts of regulations on the adoption of new technologies1 but rarely do these speculations aid ex ante analyses of those impacts.2 Most Economic Impact Studies (ECISs) of environmental regulations consider only established abatement technologies (Braden and Lyon 1985). However, various studies have shown that firms often shift to advanced production technologies that are less polluting rather than adding abatement devices to existing processes (e.g., Ashford et al. [1980]; Dewees [1978]). In such cases, a major effect of the regulation may be to hasten development and adoption of the new technology. The long-run cost to firms of shifting to new technologies may well be less than the cost of add-on abatement devices.