Estimating the Hidden Costs of Environmental Regulation

Download or read book Estimating the Hidden Costs of Environmental Regulation written by Satish Joshi and published by . This book was released on 2009 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the extent to which accounting systems separately identify all the costs of environmental regulation. We estimate the relation between the quot;visiblequot; cost of regulatory compliance (costs that firms' accounting systems correctly classify as quot;environmentalquot;), and quot;hiddenquot; environmental costs embedded in other accounts. We use plant-level data from 55 steel mills to estimate hidden costs, and we follow up with structured interviews of corporate-level managers and plant-level accountants. Empirical results show that a $1 increase in the visible cost of environmental regulation is associated with an increase in total cost (at the margin) of $10-11, of which $9-10 are hidden in other accounts. The findings suggest that inappropriate identification and accumulation of the costs of environmental compliance are likely to distort costs in firms subject to environmental regulation.