Measuring the Stringency of Environmental Regulations

Do environmental regulations discourage investment, reduce labor demand, or alter patterns of international trade? To answer these important policy questions, we need ways to measure the stringency of environmental regulations empirically. While creating measures of stringency is often characterized as a data collection challenge, we identify four fundamental conceptual obstacles to evaluating these measures: multidimensionality, simultaneity, industrial composition, and capital vintage. We then describe recent approaches used by researchers to measure the stringency of environmental regulations, primarily in the United States, and evaluate their success in light of these obstacles. We find that few approaches come close to being the ideal—a theoretically motivated, tractable, single measure that captures environmental regulatory stringency empirically.