United States Office of Air Quality FINAL REPORT

Environmental Protection Planning and Standards EPA-452/R-99-005

Agency Research Triangle Park, NC 27711 November 1999

Air

ECONOMIC IMPACT ANALYSIS OF

THE PROPOSED BOAT

MANUFACTURING NESHAP
Economic Impact Analysis 

of the Proposed 

Boat Manufacturing NESHAP

U.S. Environmental Protection Agency

Office of Air and Radiation

Office of Air Quality Planning and Standards

Air Quality Strategies and Standards Division

Research Triangle Park, NC

Prepared under contract by:

Abt Associates Inc.

55 Wheeler Street

Cambridge MA 02138

November 1999
Table of Contents

Section Page

List of Tables

List of Figures

Acronyms

Executive Summary

Chapter 1: Introduction ................................................................. 1-1

1.1 Scope and Purpose ............................................................. 1-1

1.2 Organization of the Report ....................................................... 1-1

Chapter 2: Industry Profile: Boat Manufacturing Source Category ................................. 2-1

2.1 Production Processes ........................................................... 2-1

2.2 Facilities and Employment ....................................................... 2-2

2.3 Products and Markets ........................................................... 2-4

2.4 Foreign Trade ................................................................. 2-8

2.5 Estimated Domestic Production by Boat Type ......................................... 2-11

2.6 Vertical Integration and Specialization .............................................. 2-15

2.7 Market Concentration and Competitiveness ........................................... 2-16

2.8 Costs and Profit Margins ........................................................ 2-18

2.9 Industry Forecasts ............................................................. 2-19

Chapter 3: Compliance Costs ............................................................. 3-1

3.1 Introduction .................................................................. 3-1

3.2 Facility-level Emissions ......................................................... 3-2

3.3 Compliance Costs .............................................................. 3-3

3.4 Unit Compliance Costs .......................................................... 3-7

Chapter 4: Economic Impacts ............................................................. 4-1

4.1 Introduction .................................................................. 4-1

4.2 Methodology ................................................................. 4-2

4.3 Results ...................................................................... 4-3

4.4 Facility Closures and Employment Effects ........................................... 4-14

Chapter 5: Firm-Level Analysis ........................................................... 5-1

5.1 Introduction .................................................................. 5-1

5.2 Number of Small Firms ......................................................... 5-2

5.3 Criteria for Assessing Impacts .................................................... 5-2

5.4 Impact of the Proposed Rule on Small Firms .......................................... 5-4

5.5 Conclusions .................................................................. 5-6

References ........................................................................... R-1

Appendix A: Facility-level Sales Estimates ................................................... A-1
Appendix B: Sensitivity Analysis .......................................................... B-1

Appendix C: Social Cost Equations ........................................................ C-1
List of Tables

No. Title Page

2-1 Number of Establishments and Employment 1990 - 1995 ................................... 2-2

2-2 Estimated Number of Boat Manufacturing Firms by Employment Size ......................... 2-4

2-3 Boat Sales (number and value) 1995-1997 .............................................. 2-5

2-4 Boat Sales (number) 1988-1997 ...................................................... 2-7

2-5 Industry Value of Shipments 1987-1996 ................................................ 2-8

2-6 Boat and Ship Imports and Exports 1989-1996 ........................................... 2-9

2-7 U.S. Imports for Consumption & U.S. Domestic Exports 1993-1997 .......................... 2-10

2-8 Estimated Domestic Production by Boat Type 1993-1997 ................................... 2-11

2-9 Boat and Ship Costs and Value of Shipments 1990-1996 ................................... 2-17

2-10 Solvency Ratios for SIC 3732, 1998 ................................................... 2-18

2-11 Profitability Ratios for SIC 3732, 1998 ................................................ 2-19

2-12 Projected Growth in Annual Domestic Production by Boat Type .............................. 2-22

3-1 Compliance Costs by Facility ........................................................ 3-8

4-1 Elasticity of Demand Estimates by Boat Type ............................................ 4-6

4-2 Summary of Market-Level Economic Impacts of the Proposed MACT Standards ................. 4-13

4-3 Estimated Equivalent Facility Closures by Market Segment ................................. 4-15

4-4 Estimated Change in Employment by Boat Market Segment ................................. 4-15

5-1 Estimated Number of Boat Manufacturing Firms by Employment Size ......................... 5-2

5-2 Compliance Cost to Sales Ratios by Firm Employment Size ................................. 5-5
List of Figures

No. Title Page

2-1 Location of SIC 3732 Facilities Reporting Styrene Emissions in TRI, 1995 ...................... 2-3

2-2 Outboard Boats 1988-1997 ......................................................... 2-12

2-3 PWCs 1992-1997 ................................................................. 2-12

2-4 Canoes 1994-1997 ................................................................ 2-13

2-5 Sterndrives 1988-1997 ............................................................. 2-13

2-6 Inboard Runabouts 1988-1997 ....................................................... 2-14

2-7 Inboard Cruisers 1988-1997 ......................................................... 2-14

2-8 Jet Boats 1992-1997 .............................................................. 2-15

2-9 Sailboats 1991-1997 .............................................................. 2-15

4-1 Market Model ................................................................... 4-1
Acronyms and Abbreviations

D&B - Dun & Bradstreet

EPA - U.S. Environmental Protection Agency

FRP - fiber-reinforced plastic

HAP(s) - Hazardous Air Pollutant(s)

ITC - International Trade Commission

MACT - Maximum Achievable Control Technology

NMMA - National Marine Manufacturers Association

NESHAP(s) - National Emission Standard(s) for Hazardous Air Pollutants

PPE - personal protective equipment

PWC - personal watercraft

RFA - Regulatory Flexibility Act

SBA - U.S. Small Business Administration

SBREFA - Small Business Regulatory Enforcement Fairness Act

SIC - Standard Industrial Classification 

TRI - Toxics Release Inventory 
Chapter 1 Introduction 1-8

1. Introduction

The U.S. Environmental Protection Agency (EPA) is required under Section 112 of the Clean Air Act to develop

National Emission Standards for Hazardous Air Pollutants (NESHAPs) for major and area sources of hazardous

air pollutants (HAPs). EPA is currently developing regulations on emissions of HAPs from the boat manufacturing

industry. This document provides analysis of the likely economic impacts of the proposed standards.

1.1 Scope and Purpose

The boat production process can results in emission of HAPs. These emissions impose costs on society however

these costs are not accounted for when producers and consumers make decisions regarding the quantity of boats to

produce and purchase. The costs of pollution are external to the market mechanisms that determine the price and

quantity of boats sold and thus these costs are often referred to as externalities. The proposed rule is designed to

internalize these external costs by establishing limits on the HAP content of materials used in the manufacture of

boats and limits for the amount of HAP released during certain manufacturing processes. These limits will impose

costs on the producers and consumers of boats but will also result in a decrease in the external cost of pollution. 

The limits set by the proposed rule are based on the Maximum Achievable Control Technology (MACT) for the

industry. The term “MACT floor” refers the minimum control technology on which MACT can be based. For

existing major sources, the MACT floor is the average emissions limitation achieved by the best performing 12

percent of sources (if there are 30 or more sources in the category or subcategory), or best performing 5 sources (if

there are fewer than 30 sources in the category or subcategory). For the boat manufacturing category the MACT

floor was based on emissions at the top 12 percent of sources.

The MACT standards will apply to all existing major sources of HAP emissions. EPA used data from the Toxic

Release Inventory (TRI) to define major sources for this analysis. All facilities in SIC 3732 “Boat Manufacturing

and Repair” that were listed as major sources of styrene emissions in the 1997 TRI were considered facilities

potentially affected by the regulation. All potentially affected facilities whose current practices do not meet the

MACT floor standards will be required to alter their practices to comply with the rule. These facilities will incur

compliance costs and these compliance costs will have effects on producers, consumers, and society as a whole. 

This document provides analysis on the likely economic effects of the proposed rule on affected and non-affected

producers, consumers and society as a whole. In addition, the analysis provides an indication of the effects of the

proposed rule on international trade, employment, and small businesses. While the EIA focuses on the cost of

pollution reduction it is important to keep in mind that these costs are being imposed in order to reduce the external

or hidden costs of pollution.

1.2 Organization of the Report

The remainder of this report is organized into five chapters:

ò Chapter 2: Industry Profile. This section provides an overview of the boat manufacturing industry. It

presents data on products and markets, foreign trade, market concentration, costs and profit margins, and

forecasts growth in the industry over the next five years.

ò Chapter 3: Compliance Costs. This chapter summarizes the methodology used to estimate total facilitylevel compliance costs. A detailed summary of the calculation of compliance costs can be found in the “Final
Chapter 1 Introduction 1-9

Cost Procedures Documentation Memorandum” (U.S. EPA, 1999).

ò Chapter 4: Economic Impact Analysis. Chapter 4 describes the methodology for estimating the total social

cost of the proposed regulation and provides the results of this analysis. Additional discussion is provided on

the likely impacts of the rule on facility closures and employment.

ò Chapter 5: Small Business Regulatory Enforcement and Fairness Act (SBREFA) Analysis. The

Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement Fairness Act of 1996

(SBREFA) require EPA to determine whether the rules will impose significant impacts on a substantial

number of small entities, and to take certain procedural steps if the rules might impose such impacts. Chapter

5 presents an analysis of the likely effects of the regulation on small businesses.

ò Appendices. Three appendices are provided with the analysis. Appendix A provides information on how

EPA estimated sales at the facility level. Appendix B provides a sensitivity analysis for the economic

analysis presented in Chapter 4. Appendix C presents the mathematical derivation of equations used in the

economic analysis presented in Chapter 4.
Chapter 2: Industry Profile 2-1

2. Industry Profile: Boat Manufacturing Source Category

The industry profile provides the foundation for the development of the economic analysis. The major purposes of

the profile include the following:

ò To present relevant industry financial and economic characteristics and trends—past, present, and future;

ò To provide an understanding of the industry organization, including market structure and the conduct and

performance of affected firms;

ò To identify the key factors and trends that may influence the nature and magnitude of the economic impacts

and that should be addressed in the economic analysis (e.g., the significance of international trade); and

ò to provide information necessary to identify and characterize special populations in accordance with

legislative and administrative directives (e.g., small businesses under SBREFA; state, local, and tribal

governments under UMRA; and minority and low-income groups under E.O. 12898 on environmental

justice).

This National Emission Standards for Hazardous Air Pollutants (NESHAP) will affect major sources of HAPs in

the boat manufacturing source category, which includes establishments involved in the manufacture of boats and

ships. The boat building industry is characterized by facilities engaged in the production of boats, primarily for

recreational use. In contrast, the ship building industry is engaged in the production of ships, barges and lighters,

primarily for military and commercial use. A major source, as defined in Section 112 of the Clean Air Act, is any

stationary source or group of stationary sources located within a contiguous area and under common control that

emits or has the potential to emit considering controls, in the aggregate, 10 tons per year or more of any hazardous

air pollutant or 25 tons per year or more of any combination of hazardous air pollutants. 

This industry profile focuses primarily on Standard Industrial Classification (SIC) 3732, the boat building and

repairing sector. The ship building and repairing industry (SIC 3731) will also be affected to a minimal extent by

this rule, however, the use of reinforced plastics in ships is very minor in comparison to other input materials. 

Therefore, the profile of the shipbuilding industry presented here is less detailed than that for the boat 

manufacturing industry.

2.1 Production Processes

Most boat manufacturing facilities are dedicated to either power boats or non-power boats (sailboats, canoes and

kayaks) and rarely manufacture both. Boat hulls are usually produced by hand lay-up and/or spray-up on open

molds. After the mold is treated with wax, a pigmented gel coat is applied, forming the outer skin of the boat hull. 

Once the gel coat has been laid down, boat resin is applied in conjunction with the reinforcement. Major structural

components that make up the inside, deck and cabin of the boat are built from fiber-reinforced plastic (FRP) in one

piece and then joined with the hull. (SRI International, 1996).

Most facilities use only one primary material, including FRP, aluminum, wood, or rotationally-molded

polyethylene. FRP is the most common material used for boat manufacturing, especially for power boats and

sailboats, because it can be easily molded to complex shapes, has a smooth glossy surface, and is practically

maintenance free. However, aluminum is also used in manufacturing a large portion of smaller boats, such as

rowboats, canoes, and freshwater utility and fishing boats. Aluminum is used because it is lightweight, durable,
Chapter 2: Industry Profile 2-2

and low maintenance. Rotationally-molded (roto-molded) polyethylene has been used for about two decades to

build kayaks and canoes, and is now alos being used by a handful of manufacturers to build small sailboats and

power boats less than 20 feet long. Polyethylene can also be molded to complex shapes and is very durable, but

does not have the smooth glossy finish of FRP. Wood is used in custom building of all sizes and types of boats,

primarily by small independent builders.

2.2 Facilities and Employment

Table 2-1 provides information on the number of establishments (i.e., facilities), the number of employees, and the

distribution of facilities by employment range, for both SIC 3731 (ships) and 3732 (boats) for 1990 and 1995, as

well as the percent change from 1990 to 1995. Both the boat building and shipbuilding industries experienced

growth in the number of establishments over the five year period. 

The number of boat building establishments grew by 14.8% while the number of shipbuilding establishments grew

by 5.8%. This growth came primarily from an increase in the number of small establishments with less than 20

employees. Larger establishments with more than 20 employees declined in number during the period. Overall the

two industries experienced a substantial decline in employment from 1990 to 1995. Shipbuilding employment fell

17.8% while boat building employment fell 9.6%. 

Table 2-1: Number of Establishments and Employment 1990 - 1995 

SIC Year

Total Number

of

Establishments

Total

Employment

Number of

Establishments

with < 20

employees

Number of

Establishments

with 20-99

Employees

Number of

Establishments

with 100-499

Employees

Number of

Establishments

with 500 or

More

Employees

3731-

Ships

1990 532 122,025 251 160 96 25

1995 561 100,318 315 153 75 18

%

change

5.5% -17.8% 25.5% -4.4% -21.9% -28%

3732-

Boats

1990 2,032 56,973 1,581 315 121 15

1995 2,332 51,527 1,922 300 99 11

%

change

14.8% -9.6% 21.6% -4.8% -18.2% -26.7%

Source: U.S. Department of Commerce. 1996b.

As is indicated in Table 2-1, there were 2,332 facilities involved in boat building and repairing (SIC 3732) in 1995. 

Only some of these facilities will be affected by the proposed regulation. To determine which facilities would likely

be affected by this regulation, EPA used information from the Toxic Release Inventory (TRI) database. In 1995,

172 facilities under SIC 3732 (boats) reported to EPA’s TRI, and 140 of these facilities are major sources for

HAP’s. In addition, 51 facilities reported to TRI under SIC 3731 (ships), and of these, 23 facilities are major

sources of HAPs.

Figure 2-1 shows the number of facilities in SIC 3732 that reported to TRI, by state. Florida has the most boat
Chapter 2: Industry Profile 2-3

Number of facilities

More than 20 (1)

11 to 20 (3)

1 to 10 (24)

0 (23)

manufacturing facilities (39) reporting emissions of HAPs. Five states (Florida, Tennessee, North Carolina,

Washington, and California) contain nearly half (83) of all boat manufacturers that report styrene emissions to

TRI. Most boat manufacturers reporting to TRI are in rural or suburban areas, although a few are in urban areas. 

An urban area is an area(s) that, combined with the adjacent densely settled areas, has a minimum of 50,000

persons. 

Figure 2-1: 

Location of Boat Manufacturing Firms 

Reporting Styrene Emissions in TRI, 1995

The number of small versus large boat building firms is of particular interest for the small business analysis (see

Chap

ter

5),

wher

e a

firm

is

defin

ed as

the

ultim

ate

legal

entity

owni

ng at

least

one

boat

build

ing

facili

ty.

The

Smal

l Business Administration (SBA) provides small business thresholds by 4-digit SIC code. The SBA defines “small”

for SIC 3732 (boat manufacturing and repair) as firms with fewer than 500 employees. The Statistics of U.S.

Businesses (SUSB) provides annual data on the number of firms that own at least one facility in a given Standard

Industrial Category (SIC). Data in the SUSB are reported by the employment size of the parent firm. The 1996

SUSB indicates that there are 2,611 firms with facilities primarily engaged in SIC 3732. Of these, 2,590 firms

have fewer than 500 employees and only 21 firms have more than 500 employees. The data for SIC 3732 include

both firms that manufacture boats and firms that repair boats. However, the proposed rule will apply only to firms

that manufacture boats. The total number of firms from SUSB was adjusted to estimate the number of firms that

manufacture boats, using data from the 1992 Census of Manufactures. According to the Census, 283 facilities
1

The Census of Manufactures reports the number of establishments (facilities) by primary product produced. An establishment is classified

in a particular industry if the value of its shipments of the primary products of that industry exceed the value of its shipments of the products of any

other single industry. The 283 establishments listed in Table 2-2 are classified as primarily boat repair facilities. See U.S. Department of Commerce,

1992, Table 5a.

Chapter 2: Industry Profile 2-4

specialized in boat repair in 19921. We do not have any information on the number of firms own these facilities. 

We assumed that boat repair facilities are all owned by a single-facility firm with fewer than 500 employees. Using

these assumptions, the total number of boat manufacturing firms is estimated as 2,328, of which 2,307 are small

and 21 are large firms. (See Table 2-2.)

Data from Dun and Bradstreet were used to determine firm-level employment for all affected firms. Of the 78

affected firms, 66 employ fewer than 500 people. Table 2-2 below shows the distribution of boat manufacturing

firms by employment size for both affected and unaffected firms. Note that, while there are a large number of small

boat manufacturing firms, only 2.9% of these firms will be affected by the regulation. There are only 21 large boat

manufacturing firms, but 71.4% of these firms own facilities that are major sources of styrene and that will be

affected by the proposed rule. .

Table 2-2: Estimated Number of Boat Manufacturing Firms by Employment Size

Total Number of

Firms

Number of

Affected Firms

Percent of Total

Firms That Are

Affected

Small Firms–SIC 3732 2,590 66 2.5%

Less Small Firms Specializing in Boat Repair 283 0 0.0%

Total Small Boat Manufacturing Firms 2,307 66 2.9%

Large Firms–SIC 3732 21 15 71.4%

Total Boat Manufacturing Firms 2,328 78 3.4%

2.3 Products and Markets

The U.S. boat manufacturing industry produces a wide range of boats, from small canoes and kayaks to large

luxury yachts. For the purposes of this profile, the boat manufacturing industry has been divided into eight

separate boat segments according to boat size and location of the engine. They are:

ò Outboard Boats: Small to medium-sized boats, powered by a self-contained detachable engine and

propulsion system, which is attached to the transom. This category of boats includes most runabouts, bass

boats, utility boats, offshore fishing boats and pontoons.

ò Inboard Runabouts: Mid-sized boats powered by an attached engine located inside the hull at the middle or

front of the boat, with a prop shaft running through the bottom of the boat. Over 90% of the boats in this

category are tournament ski boats (Boating Industry, 1995).
Chapter 2: Industry Profile 2-5

ò Sterndrives: Mid-sized boats powered by an attached inboard engine combined with a drive unit located on

the transom at the stern (rear) of the boat. Also known as inboard/outboards or I/Os.

ò Inboard Cruisers: Large boats powered by one or more inboard engines. Two engines are found in over

95% of these boats (Boating Industry, 1995). 

ò Personal Watercraft (PWC): Small boats (most under ten feet long) powered by water jets instead of by an

open blade propellor, on which the rider stands or sits (as on a motorcycle). A popular brand of PWC is the

“Jet Ski”.

ò Jet Boats: Small to mid-size boats powered by water jets rather than a gas or diesel motor. The jets can be

located at either the stern or inboard.

ò Canoes: Small boats powered by hand-held paddles.

ò Sailboats: This category of boats includes all sizes of boats powered, at least partially, by wind-driven sails. 

This category includes both nonpowered sailboats and auxiliary-powered sailboats that include a motor.

Table 2-3 summarizes the number of boats sold in the United States in 1997 by boat type. A total of 610,140 boats

were sold in 1997, at a value of approximately $6.8 billion. Outboard boats and PWCs made up approximately

62% of the number of boats sold in 1997 and 40% of all boat sales revenue. Over half of the units sold in 1997

were small power boats 14 to 30 feet long using either outboard engines or sterndrive engines. The next most

popular type of boat sold was the personal watercraft (PWC). 

Table 2-3: Boat Sales 1995 - 1997 (current $)

Boat Type Year Units Sold Retail Value 

($1,000)

Average Price

($)

% Total Units

Sold

Outboard

Boats

1995 231,000 $1,426,420 $6,175 34.8%

1996 215,000 $136,240 $6,336 33.9%

1997 200,000 $1,421,400 $7,107 32.8%

Personal

Watercraft

1995 200,000 $1,144,400 $5,722 30.1%

1996 191,000 $1,208,648 $6,328 30.1%

1997 176,000 $1,315,904 $6,454 28.8%

Canoes

1995 97,800 $55,941 $572 14.7%

1996 92,900 $53,789 $579 14.6%

1997 103,600 $61,124 $590 17.0%
Table 2-3: Boat Sales 1995 - 1997 (current $)

Boat Type Year Units Sold Retail Value 

($1,000)

Average Price

($)

% Total Units

Sold

Chapter 2: Industry Profile 2-6

Sterndrive

Powerboats

1995 93,600 $1,791,310 $19,138 14.1%

1996 94,500 $1,925,248 $20,373 14.9%

1997 92,000 $2,068,528 $22,484 15.1%

Inboard

Runabouts

1995 6,900 $147,660 $21,400 1.0%

1996 6,000 $126,234 $21,309 0.9%

1997 6,100 $136,408 $22,362 1.0%

Inboard

Cruisers

1995 5,460 $1,169,500 $214,195 0.8%

1996 5,350 $1,215,268 $227,153 0.8%

1997 6,300 $1,669,103 $264,937 1.0%

Jet Boats

1995 14,700 $141,796 $9,646 2.2%

1996 14,100 $143,284 $10,162 2.2%

1997 11,700 $144,389 $12,341 1.9%

Sailboats*

1995 14,320 N/A N/A 2.2%

1996 15,940 N/A N/A 2.5%

1997 14,440 N/A N/A 2.4%

Total 1995 663,780 $5,877,027 --- 100%

Total 1996 634,790 $4,808,711 --- 100%

Total 1997 610,140 $6,816,856 --- 100%

Source: National Marine Manufacturers Association. 1997, pg. 4.

*Represents the number of sailboats produced in North America. Source: The Sailing Company of Miller

Sports Group LLC, 1998.

Table 2-4 presents historical data for boat sales from 1988 to 1997. As a recreational (luxury) good, boat sales are

influenced by overall economic conditions and normally decline during recessions, such as the one that occurred

during the early 1990s. A luxury tax imposed in 1990 (and repealed in 1993) of 10% on the portion of the retail

price of a pleasure boat that exceeded $100,000 also affected sales of large boats. (U.S. Department of Commerce,

1994: 37-12) Different market segments are also subject to growth or decline in response to consumer preferences. 

PWC and jet boat sales, for example, have doubled and tripled, respectively, over the last 5 years. (NMMA, 1996)
Chapter 2: Industry Profile 2-7

Table 2-4: Boat Sales 1988 - 1997

(Thousands of boats / year)

Boat Type 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Average

Annual

Growth 88-97

Outboard Boats 355 291 227 195 192 205 220 231 215 200 -4.3%

PWC * NA NA NA NA 79 107 142 200 191 176 20.4%

Canoes* NA NA NA NA NA NA 100 98 93 104 1.0%

Sterndrive

Powerboats 148 133 97 73 75 75 90 94 95 92 -3.8%

Inboard Runabouts 7 9 8 6 6 7 7 7 6 6 -1.8%

Inboard Cruisers 14 12 8 4 4 3 4 6 5 6 -5.3%

Jet Boats* NA NA NA NA 4 8 9 15 14 12 32.1%

Sailboats* NA NA NA 9 11 12 13 13 14 NA 11.0%

Totals 524 445 339 278 370 417 485 565 633 596 1.4%

*Data not available (NA) for all years. Average annual change is based on the longest period of available data.

Table 2-5 presents data on the value of shipments for SICs 3731 and 3732. While the value of shipments for ship

building (SIC 3731) rose steadily in the late 1980's and early 1990's, it has been on a fairly steady decline since

1992. Much of this decline may be attributed to a decrease in military procurement. (U.S. Department of

Commerce, 1994: 21-1) The value of shipments for the boat manufacturing and repair industry (SIC 3732) has

fluctuated throughout the ten years shown. There was a large decline in the early 1990's when the economy was in

a recession. However, value of shipments has been steadily increasing since then, and by 1997 was close to its prerecession peak value of shipments. 
Chapter 2: Industry Profile 2-8

Table 2-5: Industry Value of Shipments 1987-1996

(Millions of $) 

SIC 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

3731-

Ships

8,504 8,810 9,397 10,915 10,935 10,381 9,801 9,877 9,544 9,811

Annual

%

Change

3.6% 6.7% 16.2% 0.2% -5.1% -5.6% 0.8% -3.4% 2.8%

3732-

Boats

5,353 5,935 5,739 4,998 3,676 4,599 4,975 5,334 5,640 5,823

Annual

%

Change

10.9% -3.3% -12.9% -26.5% 25.1% 8.2% 7.2% 5.7% 3.2%

Source: U.S. Department of Commerce, 1992 and 1996a.

2.4 Foreign Trade

Table 2-6 presents the value of imports and exports for both the boat manufacturing and repair industry (SIC 3732)

and the shipbuilding and repair industry (SIC 3731) for 1989 to 1996. For SIC 3732, exports today are only one

percent greater than they were in 1989. Since 1990, exports have declined every year except 1995, during which

they rebounded almost 30% only to decline again in 1996. The share of exports to the total value of shipments

declined steadily from a high of almost 21% in 1991, to a low of about 9.5% in 1994. In 1995, export share grew

slightly, to 11.7%. In contrast, the value of boat imports has been rising since 1991, and in 1996 totaled almost $1

billion. As a percent of the total value of shipments of the boat building industry, imports have been steadily

climbing since 1992, from 5.5%, to over 14% in 1996. 

Boat imports come primarily from Canada and Japan. The U.S. imported over $274 million in boats from Canada

and over $106 million from Japan in 1995. (Boating Industry Magazine, 1995: 7) Much of the increase in U.S.

imports is attributable to personal watercraft imports from Canada. (U.S. Department of Commerce, 1994: 37-12) 

The bulk of U.S. exports also go to Canada, which received a total of almost $140 million in exports from the U.S.

in 1995. (Boating Industry Magazine, 1995: 7)

In the shipbuilding and repair industry (SIC 3731), imports fluctuate from year to year. Exports also fluctuate, but

to a lesser degree. In 1996, the total value of imports and exports to value of shipments was only 4.1% of the total

value of shipments for the ship building and repairing industry.
Chapter 2: Industry Profile 2-9

Table 2-6: Boat and Ship Imports and Exports 1989-1996

(Millions of $)

1989 1990 1991 1992 1993 1994 1995 1996

SIC 3731 Ship building and repair

Imports 145 14.8 14.4 50.9 517 12.4 29.4 54

Exports 313 434 321 652 379 595 483 346

Deficit/

surplus 168 419.2 306.6 601.1 -138 582.6 453.6 292

SIC 3732 Boat building and repair

Imports 404 279 207 257 425 564 807 997

Exports 615 793 774 714 534 507 658 621

Deficit/

Surplus 211 514 567 457 109 -57 -149 -376

Source: U.S. Census Bureau. 1996c.

Table 2-7 shows U.S. imports for consumption and U.S. exports for the different boat types from 1993 -1997 in

constant 1997 dollars, and their percentage change from 1993-1997. Data were obtained from the International

Trade Commission (ITC). The ITC collects data on exports and imports by boat type and size. In general, these

data were directly comparable to the eight boat categories used in this analysis. However, the ITC classification

does not include jet boats. The ITC classifies boats by the location and not type of engine. Thus, jet boats are

included in the import and export data for inboard runabouts, sterndrives and outboards, depending on the location

of the jet engine. 

The U.S. primarily exports PWCs, sterndrives and inboard cruisers, based on the value of total exports. These

three products accounted for 68% of the value of all boat exports in 1997. The U.S. primarily imports PWCs and

inboard cruisers. These two products accounted for 74.2% of the value of total boat imports in 1997. While still

relatively small in value, the outboard, canoe and inboard runabout market segments showed remarkable growth in

imports over the years 1993 to 1997. Imports of outboards grew by 172%, imports of canoes grew by 112% and

reported imports of inboard runabout grew by 235%. However, the growth in inboard runabout imports is likely to

be the result of the ITC classification of jet boats as inboard runabouts. 
Chapter 2: Industry Profile Draft-Do Not Cite or Quote 2-10

Table 2-7: U.S. Imports for Consumption & U.S. Domestic Exports 

1993-1997

(Thousands of 1997 $)

Exports %

change

1993-

1997

Imports %

change

1993-

1997 BOAT

TYPE

1993 1994 1995 1996 1997 1993 1994 1995 1996 1997

Outboard

Boats

$55,416 $48,055 $40,524 $42,953 $59,331 7.1% $4,531 $6,482 $8,660 $11,582 $11,096 144.9%

PWC $118,953 $107,648 $136,880 $108,287 $123,111 3.5% $255,617 $364,848 $535,121 $602,949 $382,370 49.6%

Canoes $9,323 $9,939 $9,720 $12,349 $10,651 14.2% $7,030 $8,734 $10,699 $11,412 $13,475 91.7%

Sterndrive

Powerboats

$141,488 $146,452 $196,128 $195,717 $199,364 40.9% $20,290 $29,805 $31,598 $28,688 $27,051 33.3%

Inboard

Runabouts

*

$69,696 $73,296 $74,840 $76,328 $78,347 12.4% $18,639 $22,717 $27,614 $33,527 $40,969 199.8%

Inboard

Cruisers

$135,425 $103,540 $127,795 $101,112 $134,860 -0.4% $97,741 $123,308 $151,253 $145,265 $90,184 -7.7%

Jet Boats NA -- $26,365 $16,740 $9,769 NA -- $100 $31,572 $105,388 $180,528 NA

Sailboats $63,083 $60,349 $80,468 $81,309 $57,405 -9.9% $67,821 $55,189 $50,734 $81,199 $68,006 0.3%

Total $593,384 $549,279 $692,720 $634,795 $672,838 $471,669 $611,183 $847,251 $1,020,010 $813,679

Source: U.S. International Trade Commission, 1998; provided by fax. Translated to 1997 dollars using the Consumer Price Index (CPI).

* Trade data for the Inboard Runabout market are inconsistent before and after 1995. This is largely due to a change in classification by the ITC (including potential inclusion of jet

boats in the trade data for this sector) and does not represent a real increase in trade in inboard runabouts. The percentage changes reported here reflect the data from 1993-1995 only.
Chapter 2: Industry Profile 2-11

2.5 Estimated Domestic Production by Boat Type

The following subsections present historical data on domestic production for each of the boat markets. Domestic

production is not reported directly, but was calculated by subtracting imports from domestic sales and adding

imports.

Information on domestic sales, imports and exports are listed for each boat market. Data on domestic sales were

obtained from the National Marine Manufacturers Association (NMMA, 1996) while trade data were obtained

from the International Trade Commission (ITC 1998). An estimate of the value of net domestic production by boat

type was calculated as domestic sales plus exports minus imports. This value of production was used to estimate

the number of boats produced, dividing by the average price of boat for that boat type. Table 2-8 presents the

estimated domestic production by boat type for the years 1993-1997. Figures 2-2 through 2-9 graph the trends in

domestic sales from 1988 to 1997, as well as exports, imports and estimated net domestic production by boat type

for the period 1993-1997. Domestic sales data for sailboats, PWCs, jet boats, and canoes are presented for the

longest time series available (1991-1997 for sailboats, 1992-1997 for PWCs and jet boats, and 1993-1997 for

canoes). Note that data are reported by NMMA on the number of boats produced each year, but the estimates of

number of boats imported, exported and produced domestically are derived from reported dollar values, translated

into constant dollar terms and divided by 1997 average boat prices by boat type. The latter series are therefore

approximations and subject to some error. The trends in each market are summarized separately below. 

Table 2-8 Trends in Estimated Domestic Production by Boat Type, 1993-1997 (1,000s of units)

1993 1994 1995 1996 1997

Outboards 212 226 235 219 207

PWCs 86 102 138 114 136

Canoes NA 102 96 94 99

Sterndrives 80 95 101 102 100

Inboard

Runabouts*

7 7 7 6 6

Inboard Cruisers 4 4 5 5 6

Jet Boats** 8 9 15 14 12

Sailboats 12 13 15 14 14

* Data on imports and exports for the years 1996 and 1997 differ substantially from previous years due to changes in

classification of boats. For the remainder of this profile, the data on domestic production from 1996 and 1997 are not

used for the inboard runabouts market.

** Data on imports and exports of jet boats are not available as a separate category from the ITC. The ITC classifies

boats based on the location and not the type of engine. Thus, jet boats are included in the data on inboard runabouts,

sterndrives, and outboards depending on the location of the engine. The data presented here represent domestic sales of

jet boats only.
Chapter 2: Industry Profile 2-12

Figure 2-2 

Outboard Boats 

1988-1997

0

50

100

150

200

250

300

350

400

19881990199219941996

Number of Boats (1,000)

D o mestic Sales

Exports

Impo rts

Estimated Net Domestic

Production

Figure 2-3

 PWCs 

1992-1997

0

50

100

150

200

250

199219931994199519961997

Number of Boats (1,000s)

D o mestic Sales

Exports

Impo rts

Estimated Net

D o mestic Production

2.5.1 Outboards

Domestic sales of outboards declined steadily

and rapidly from 1988-1991. The 1991

number of boats sold was just over half of the

number sold in 1988. Since 1991, domestic

sales have been relatively flat. Both exports

and imports have been flat since 1993 and are

not significant compared with domestic sales in

this sector.

2.5.2 PWCs

Domestic sales of PWCs rose rapidly from 1992 to

1995 and have been declining since then. PWCs

were introduced to the boat market in the early

1990s and the initial rapid growth in sales is

consistent with an emerging market segment. 

International trade is a significant factor in this

sector. Exports of PWCs have fluctuated between

16,000 and 23,000 boats per year. Imports rose

substantially from an estimated 40,000 boats in

1993 to 93,000 boats in 1996. Imports fell off

significantly in 1997 to only 59,000 boats. 

Estimated net domestic production of PWCs has

increased roughly 60% since 1992.
Chapter 2: Industry Profile 2-13

Figure 2-4

 Canoes 

1994-1997

0

20

40

60

80

100

120

1994 1995 1996 1997

Number of boats (1,000s)

D o mestic Sales

Exports

Impo rts

Estimated Net

D o mestic

Production

Figure 2-5 

Sterndrives

 1988-1997

0

20

40

60

80

100

120

140

160

19881990199219941996

Number of Boats (1,000s)

D o mestic Sales

Exports

Imports

Estimated Net

D o mestic

Production

2.5.3 Canoes

Canoe data are available from 1993 to 1997. The

market for canoes has remained relatively stable

over that time frame. Domestic sales fluctuate

around 100,000 boats per year. Exports fluctuate

between 16,000 and 21,0000 canoes per year and

imports have been increasing steadily.

2.5.4 Sterndrives

Domestic sales of sterndrive powerboats fell

significantly in the late 1980s and early 1990s. 

Sales rose again slightly from 1993 to 1994 and

have remained relatively flat since 1994. 

International trade does not play a significant

role in this sector, although exports generally

exceed imports.
Chapter 2: Industry Profile 2-14

Figure 2-6 

Inboard Runabouts 

1988-1997

0

2

4

6

8

10

19881990199219941996

Number of Boats (1,000s)

D o mestic Sales

Exports

Impo rts

Estimated Net

D o mestic

Production

Figure 2-7 

Inboard Cruisers 

1988-1997

0

2

4

6

8

10

12

14

16

19881990199219941996

Number of Boats (1,000s)

D o mestic Sales

Exports

Impo rts

Estimated Net

D o mestic

Production

2.5.5 Inboard Runabouts

Domestic sales of inboard runabouts have been

relatively stable since 1991. Exports have also

been steady, while imports of inboard runabouts

appear to have increased substantially in 1996

and 1997. There is no qualitative evidence in

the trade literature to confirm this growth rate in

imports for the inboard runabout sector. It is

suspected that this apparent increase is partially

due to changes in classification of the

international trade statistics for this category,

including potential inclusion of jet boat imports

and exports. Data on domestic production are

therefore not estimated for inboard runabouts

after 1995.

2.5.6 Inboard Cruisers

The inboard cruiser market was hurt severely by the

recession of the early 1990s and the imposition of

the luxury tax in 1990. Domestic sales of inboard

cruisers plummeted from an estimated 14,000 boats

in 1988 to 4,000 boats in 1991. The inboard cruiser

sector has rebounded slightly since 1991 but sales

are still well below the highs of the late 1980s. 

International trade plays only a limited role in this

sector.
Chapter 2: Industry Profile 2-15

Figure 2-8 Jet Boats 

1992-1997

0

2

4

6

8

10

12

14

16

1992 1993 1994 1995 1996 1997

Number of Boats (1,000s)

D o mestic

Sales

Figure 2-9 

Sailboats 

1991-1997

0

2

4

6

8

10

12

14

16

1991199219931994199519961997

Number of Boats (1,000s)

D o mestic Sales

Exports

Impo rts

Estimated Net

D o mestic

Production

2.5.7 Jet Boats

Domestic sales of jet boats increased sharply

from 1994 to 1995 and have fallen off

somewhat since then. While no specific

international trade data were available on jet

boats from the ITC, qualitative evidence

indicates that the imports and exports of this

boat type have been rising over recent years. 

2.5.8 Sailboats

Sales data on the sailboat sector are available

only from 1991 to 1996. In general, the

sailboat sector has seen a modest but steady

growth in domestic sales over this period. 

Exports and imports have fluctuated slightly

but generally have remained between and

estimated 2,000 and 4,000 boats per year for

exports and between 2,000 and 3,000 units per

year for imports.

2.6 Vertical Integration and Specialization 

Vertical integration refers to the extent to which a single firm produces raw material or intermediate inputs as well

as final goods and services, as opposed to specializing in one stage of production. Specialization refers to the

diversity of product lines produced more generally. To the extent that a regulation affects only a small part of a

firm’s production, that firm may be better able to adjust production to minimize compliance costs or may be better

able to absorb the costs (other things being equal.) On the other hand, a vertically-integrated firm which produces

an input that is subject to regulation may bear a greater burden from the regulation than a competitor that

purchases its inputs and can more readily switch to inputs not affected by the regulation. The extent of vertical and

specialization may also affect a firm’s supply response in the face of compliance costs. For example, a producer

making multiple products using the same production process being addressed by a regulation may have more ability

to recover some of its costs through price increases, if it faces inelastic demand in at least some of those markets,
Chapter 2: Industry Profile 2-16

than a competitor that is specialized in one of the product markets with more elastic demand. The effect of vertical

and horizontal integration on relative compliance costs and on responses to regulation is a complex subject that

depends on the characteristics of each industry. 

Many boat manufacturing facilities are somewhat vertically integrated in that they manufacture boat parts,

assemble the parts, and install the electronic, mechanical, and engine systems. However, some facilities (e.g., many

outboard boat manufacturers) specialize in the manufacture of boat bodies or hulls, which are sold without engines

or extensive fittings. Virtually all boat manufacturers purchase some inputs, including resins and gels, engines, and

mechanical and electrical components, from outside suppliers. In particular, boat manufacturers do not produce the

HAP-containing materials that will be affected by the proposed rule, so that the cost of switching materials should

not vary much among producers. 

Specialization ratios provide a measure of the extent to which an industry specializes in production of its primary

product. A specialization ratio is provided by the U.S. Department of Commerce for every industry, and represents

the ratio of primary product shipments to total products for the establishments classified in the industry. (U.S.

Department of Commerce, 1992: A-4) The specialization ratio for the boat building and repairing industry (SIC

3742) was 99% in 1987 and 98% in 1992, the last year for which these data are available. (U.S. Department of

Commerce, 1993: 1-63) This indicates that facilities in this industry are highly specialized in the production of

boats, rather than producing diverse products at the same site. Firms owning those facilities may be more

diversified, however. Brunswick, which produces boats and a variety of other recreational products (such as

bowling equipment), and Kawaskai, Yamaha and Bombadier,which produce motorcycles and snowmobiles as well

as jet boats, are prominent examples.

For the ship building and repairing industry, the specialization ratio was 99% for both 1987 and 1992. (U.S.

Department of Commerce, 1993: 1-63) However, only a very small percentage of facilities (about 4%) in this SIC

will likely be affected by this regulation.

2.7 Market Concentration & Competitiveness

U.S boat manufacturing is relatively concentrated. The three largest boat manufacturing companies, in order of

market share, are Brunswick Corporation, Genmar Industries and Outboard Marine Corporation. These three

companies account for more than 60% of the total pleasure boat market, with the majority of remaining producers

accounting for at most a 1% to 2% market share each. (SRI International, 1996). However, U.S. boat producers

face foreign competition in most markets, and also compete with a variety of recreational products and other

consumer goods for consumer purchases. (See Section 2.9.1 below.) Therefore, U.S. boat manufacturers face

substantial competition in the broader market for recreational goods, and are not likely to be able to exercise

substantial market power or to earn excess profits.
2Cost of materials refers to direct charges actually paid or payable for items consumed or put into

production during the year, including freight charges and other direct charges incurred by the establishment in

acquiring these materials. Value of shipments measures the received or receivable net selling values, f.o.b. plant

(exclusive of freight and taxes), of all products shipped, both primary and secondary, as well as miscellaneous

receipts. This ratio represents a rough measure of profitability, with a higher ratio representing lower profitability.

Chapter 2: Industry Profile 2-17

2.8 Costs and Profit Margins

Table 2-9 below shows the ratio of cost of materials and payroll to the value of shipments for both the boat building

and repair industry (SIC 3732) and ship building and repair (SIC 3731) industry2. While this ratio includes most

costs, such as all forms of compensation, materials, fuels, etc., it does not include all costs. Other expenses, such

as taxes and interest expenses, are not reflected in these figures. The ratio of these expenses to shipments have

remained relatively constant, increasing slightly in 1996. The boat industry ratio has declined slightly from a high

of 80% in 1993. 

Table 2-9: Boat and Ship Costs and Value of Shipments 1990-1996

(Millions of $)

1990 1991 1992 1993 1994 1995 1996

SIC 3731 Ship building and repair

Shipments 10,915 10,935 10,381 9,801 9,865 9,544 9,811

Material Costs 4,493 4,495 4,065 4,007 4,103 3,866 4,365

Payroll 3,606 3,680 3,624 3,366 3,326 3,222 3,175

Ratio of material

and

payroll/shipments 74% 75% 74% 75% 75% 74% 77%

SIC 3732 Boat building and repair

Shipments 4,998 3,676 4,599 4,940 5,334 5,640 5,823

Material Costs 2,792 2,058 2,609 2,910 3,075 3,237 3,396

Payroll 1,061 824 1,006 1,026 1,081 1,098 1,177

Ratio of material

and

payroll/shipments

77% 78% 79% 80% 78% 77% 78%

Source: U.S. Department of Commerce, 1992 and 1996a.

The financial condition of producers affects their ability to absorb the costs associated with the MACT rule. Each

year, Dun and Bradstreet (D&B) publishes Industry Norms and Key Business Ratios (Dun and Bradstreet, 1998),

which reports certain financial ratios for a sample of firms in different industries. Tables 2-10 and 2-11 present an

analysis of selected solvency and profitability ratios for 103 establishments in SIC 3732 from the 1998 D&B

report. 
Chapter 2: Industry Profile 2-18

Solvency, or liquidity, measurements are significant in evaluating a company’s ability to meet short and long-term

obligations. These figures are of primary interest to credit managers of commercial companies and financial

institutions. Exhibit 2-10 below presents three solvency ratios for SIC 3732 and includes a brief analysis of these

ratios, based on D&B’s guidelines for interpreting the ratios.

Exhibit 2-10: 1998 Solvency Ratios for SIC 3732

Ratios Description 1998 Median* 

Quick Ratio

 (Cash + Receivables

to Current Liabilities )

Indicates the protection afforded short term creditors,

showing the size of liquid assets available to cover debt

that falls due within one year.

0.6

Analysis: A ratio of 1 to 1

(1.0) implies that the industry

is in a liquid condition. A

ratio of less than 1.0 is

considered acceptable for short

periods of time. 

Current Ratio

(Current Assets to

Current Liabilities)

Measures the degree to which current assets cover

liabilities, indicating the ability to retire current liabilities

and cover any possible shrinkage in the value of current

assets.

1.9

Analysis: A ratio of 2 to 1

(2.0) or better is considered

good.

Current Liabilites to

Net Worth

Shows the level of risks creditors are assuming with funds

that the owners have used to make permanent

investments.

64.0%

Analysis: This percentage is

considered average. Care

should be exercised when

extending credit to any firm

with current liabilities

exceeding 66.6% of net worth.

*Analysis is based on Dun & Bradstreet guidelines for interpreting financial ratios. Dun and Bradstreet, 1998.

Profitability ratios show how successful a business is in earning returns on invested equity and assets. Exhibit 2-11

below presents three profitability ratios for SIC 3732 and includes a brief analysis of these ratios.
Chapter 2: Industry Profile 2-19

Exhibit 2-11: Profitability Ratios for SIC 3732

Ratios Description Median for 1998*

Return on Sales

(Profit Margin)

Shows the profits earned per dollar of sales as a measure of

the efficiency of the operation. Indicates the ability of the

firms to achieve satisfactory profits for owners and withstand

adverse business conditions.

3.1%

Analysis: Higher return on

sales margins represent

higher profits and a greater

ability to absorb compliance

costs. A return on sales ratio

of 3.1% is considered

respectable.

Return on Assets

Measures firm profitability by comparing operating profits

with assets available to earn a return. Indicates whether

firms are using their assets efficiently.

7.0%

Analysis: Companies

efficiently using their assets

will have a relatively high

return. Seven percent is

represents a healthy return

on assets.

Return on Net

Worth 

(Return on Equity)

Analyzes the ability of management to realize an adequate

return on owners’ investments.

13.4%

Analysis: Generally, a

relationship of at least 10

percent is regarded as a

desirable objective for

providing dividends plus

funds for future growth.

*Analysis is based on Dun & Bradstreet guidelines for interpreting financial ratios. Dun and Bradstreet, 1998.

2.9 Industry Forecasts

This section discusses expected future trends in domestic sales and production, with an emphasis on projecting the

number of new boat manufacturing facilities that might be constructed over the next five years. Any new boat

manufacturing facilities, or major expansions of existing facilities, would be subject to the proposed boat

manufacturing NESHAP. 

The demand for boats is highly correlated with two potentially volatile and difficult to predict phenomena: the

business cycle (and its impacts on personal wealth) and the weather. These correlations add uncertainty to any

production forecast for this industry. Since recreational boats are a luxury good, demand fluctuates with the

business cycle. Recent growth in sales of high-end boats, such as inboard cruisers and yachts, has been attributed

in large part to the wealth effect created by a strong stock market. Forecasting long term boat sales based on the

sales patterns during a bull market is likely to skew forecasts and to predict more new facilities building more

expensive boats. For similar reasons, the retail demand for boats within a given season may not be indicative of

future sales because sales of boats within one or two seasons are somewhat correlated with the weather in those

seasons. Changes in retail demand due to the weather may have a current as well as a lagging impact on the

demand for and production of boats. If the weather is predicted far enough in advance (for example, El Ni£o), then

current production may be reduced in anticipation of lower demand. If poor weather is unexpected, current
Chapter 2: Industry Profile 2-20

production may not adjust, increasing retail inventories and decreasing production the following season.

Given that the demand for boats is correlated with the business cycle and the weather, rational expectations would

suggest that boat manufacturers will react cautiously to changes in current consumption when determining future

production. It is expected that increases in demand resulting from unexpectedly good weather or an unexpectedly

good economy will be met initially through increased production at existing facilities rather than construction of

new capacity, due to the investment associated with establishing a new facility and uncertainty about the

sustainability of increased sales. Thus, the key to predicting the construction of new boat manufacturing facilities is

predicting sustainable shifts in consumer behavior and preferences. Owners are likely to consider several years’

worth of sales data when deciding whether to add capacity. Owners are also likely to consider market research

revealing changes in consumer preferences or other consumer characteristics that indicate which segments of the

recreational boating industry are likely to continue to grow. 

2.9.1 Qualitative Forecasts for the Boat Manufacturing Industry

While specific predictions of sales by sector are not available, a review of several market analyses provided general

forecasts for the industry. These sources were used in combination with the historical trend data presented in

Section 2.2.3 to project sales to the year 2002. These general trends are summarized below.

ò Boats have fallen in consumers’ ranking of desired luxury goods. (DeFranco& Porter, 1996: 43) In

consumers’ ranking of 17 luxury items (including new cars, vacations, remodeled home etc.), boats fell

from sixth in 1984 to sixteenth in 1995 and rebounded slightly to fifteenth in 1996. The increase in boat

sales over the past few years is likely the result of households purchasing more of all luxury items rather

than a change in the relative preference for boats. To the extent that households will purchase any luxury

items under less robust economic conditions, they would likely substitute away from boats towards the

more highly ranked luxury items.

ò PWCs and jet boats have introduced new consumers to the recreational boating market. (Kurowki, 1996:

12) PWCs and jet boats have attracted younger consumers to the recreational boating market. These

watercraft are less expensive and more mobile than traditional boats. Sales of PWCs and jet boats have

been increasing since their introduction, and sales are expected to continue to grow, albeit at a slightly

lower rate than in the last few years. 

ò The market for used boats is increasingly shaping demand for new boats. (DeFranco, 1996: 10) 

Consumers are becoming more sophisticated in their boat purchases and the boat market is beginning to

resemble the automobile market. Among other trends, consumers are demanding more financing options,

including leases. Used boat sales have increased as a percent of total boat sales. A strong used boat

market can have various implications for boat manufacturers. To the extent that consumers are trading in

used boats for new boats, increased sales of used boats may actually reflect increased demand for new

boats. However, used boats may also compete with new boat sales if total demand for boating is not

increasing.

ò Recent sales figures indicate a trend towards high-end boats with mid-size boats suffering a decline.

(DeFranco & Porter, 1996: 43) Luxury boats have been faring well, but sales of mid-size boats targeted at

middle class families have been falling. High credit card, mortgage, automobile and other consumer debt

is said to be partially responsible for the declining demand for boats by middle class households.
Chapter 2: Industry Profile 2-21

ò Exports of boats have been steady while imports have risen substantially. (Boating Industry Magazine,

1997: S1) Imports of PWCs and jet boats (primarily from Canada and Japan) have been largely

responsible for the imbalance of trade in the boat manufacturing industry. Exports of boats depend on the

weather and businesses cycles as well as consumer preferences in other countries. The European and

Japanese economies have not been experiencing high levels of economic growth as the U.S. has over the

past few years, and this is likely responsible for the stagnation of exports.

ò U.S. Industry and Trade Outlook predicts that recreational boat sales will grow at 2% annually over five

years. (U.S. Department of Commerce, 1998: 39-17) Imports are expected to increase by four percent

annually and exports will increase by six percent annually.

2.9.2 Forecasts of Domestic Boat Production

The information on historical trends in the boat manufacturing industry outlined in Section 2.2.3 was combined

with the qualitative forecasts for the boating sector in Section 2.2.8 to project growth in the industry to 2002. In

order to determine the growth in net domestic production for the next five years, the quantitative and qualitative

information on sales trends was used to determine a high and a low projected rate of growth in domestic sales for

each boat sector over the next five years. Total exports for the boat sector based on past export trends was then

projected. Finally, the import share of domestic sales was projected based on past trends and qualitative

information on import growth or decline. Net domestic production was then calculated as domestic sales minus the

import share plus exports. The change in net domestic production is divided by the average number of boats

produced at a single facility to obtain an estimate of the number of new boat manufacturing facilities that may be in

operation by 2002. Note that we are assuming that all growth in production requires new facilities. In reality some

of the growth in production will be absorbed by current facilities. Thus, these projections should be viewed as

upper-bound estimates of the number of new facilities. 

Table 2-12 summarizes the forecasts for all eight boat types. As that table shows, only modest overall growth is

expected in the number of facilities (major sources) that might be subject to the propsoed NESHAP, ranging from a

high of 17 new facilities by the year 2002 to a low of three additional facilities in that year. Projections for each

boat type are presented separately below. 
Chapter 2: Industry Profile 2-22

Table 2-12: Projected Growth in Annual Domestic Production by Boat Type

Low

Growth

Rate

High Growth

Rate

Low Change

in Net

Domestic

Production by

2002

High Change

in Net

Domestic

Production by

2002

Low Number

of Projected

New Major

Sources by

2002**, ***

High

Number of

Projected

New Major

Sources by

2002**, ***

Outboard 0.0% 1.5% (387) 17,060 0 6

PWC 3.0% 10.0% 5,590 53,240 0 1

Canoes 0.0% 2.0% (2,078) 6,117 0 0

Sterndrive -1.0% 1.0% (4,310) 4,772 (1) 1

Inboard

Cruisers

0.0% 3.0% (47) 897 0 4

Inboard

Runabouts

-1.0% 1.0% (-343) 157 0 0

Jet Boats* 2.0% 10.0% 8,304 10,674 1 1

Sailboats 1.0% 2.0% 4,596 5,172 3 4

Total 11,325 98,090 3 17

* Projections for jet boats are of domestic sales and not domestic production because import and export data are not

available.

** Represent the maximum number of new facilities because all growth in sales is assumed to be from new

facilities, rather than from expanded production at existing facilities.

*** Calculated assuming that the percent of domestic production produced by major sources remains the

same as currently.

2.9.2a Outboards

Domestic sales of outboard boats fell over 40% from 1988-1992. However, in the past five years (1993-1997)

both domestic sales and annual domestic production have been relatively constant. Qualitative information on boat

sales suggests a decline in the ranking of boats among leisure products and the general trend away from smaller and

mid-size boats. Given these trends, a low forecast for domestic sales of zero growth and a high forecast of 1.5%

was used. Exports are forecast to remain constant at approximately 8,000 boats per year. The import share is

projected to remain relatively constant at 0.8% of domestic sales. 

Using the low forecast results in a decline in domestic production of outboards of almost 400 boats. The decline is

caused by the slight increase in the import share. Using the high forecast rate results in a total increase in annual

domestic production of 17,000 boats by 2002.
Chapter 2: Industry Profile 2-23

2.9.2b PWCs

Over the six years for which data are available for PWCs, net domestic production has grown at an average annual

rate of 12.0%. Domestic production of PWCs rose quickly shortly after PWCs entered the recreational boat market

and have appeared to level off as this market segment has matured. Sales over the last two years have actually

declined. Given these recent trends, a low forecast growth rate for domestic sales of three percent and a high

growth rate of 10% was used. Exports are assumed constant at 19,000 boats per year while the import share is

forecast to remain at about 40% of domestic sales.

Based on the low forecasted growth rate of three percent, annual domestic PWC production will increase by

approximately 5,600 boats by 2002. Based on a high forecast growth rate of 10%, annual domestic PWC

production will increase by approximately 53,000 boats by 2002.

2.9.2c Canoes

The canoe market has remained stable over the past 5 years. Zero growth is used as a low projection of domestic

sales and two percent growth as a high projection. Exports are projected to remain constant at 18,000 boats per

year. The import share has been steadily rising in the sector and it is projected that it will increase to 24% of

domestic sales by 2002.

Using the low forecast, a decline in annual domestic production in this sector is projected. Using the high forecast,

an increase in domestic production of approximately 6,100 boats per year by 2002 is projected.

2.9.2d Sterndrives

Over the ten year period from 1988-1997, sterndrive production has fallen by over 30% (an average of 3.2% per

year). However, most of that decline occurred in the years 1988 to 1991. Since 1994, sterndrive production has

been fairly steady at roughly 100,000 boats produced per year. The low forecast for annual domestic sales in this

sector is negative one percent and the high forecast growth rate is one percent. Exports in this sector are projected

to hold steady at 9,000 boats per year. The import share of domestic sales is also expected to hold steady at 1.3%

of domestic sales.

Using the low forecast growth rate leads to a decline in annual domestic production of roughly 4,300 boats. The

high forecast growth rate results in an increase in annual domestic production of 4,700 boats.

2.9.2e Inboard Runabouts

Domestic sales of inboard runabouts decreased annually by an average rate of 1.8% per year from 1988 to 1997. 

Trends in trade data are skewed by the substantial reported increase in exports and imports in 1996 and 1997. As

previously mentioned, these increases are not substantiated in the trade literature. We use negative one percent as a

low forecast for growth in domestic sales for this sector and one percent as a high estimate. Given the previously

mentioned difficulties with the international trade data for this sector we assume that exports will remain constant at

the 1995 rate of 1,000 boats per year and that the import share will also remain at the 1995 rate of 18% of

domestic sales. 
Chapter 2: Industry Profile 2-24

Using the low growth rate, a decline in domestic production of approximately 340 boats in this sector is projected

for the year 2002. Based on the high growth rate of one percent, a very slight increase in production of

approximately 150 boats is projected for 2002.

2.9.2f Inboard Cruisers

Domestic sales of inboard cruisers fell over 50% from 1988 to 1997 (an average of -5.3% annually). As with the

sterndrive market, most of the decline in inboard cruiser production occurred in the years 1988-1991. Recent sales

have been steadily increasing. Inboard cruisers are a luxury boat and the recent increase in sales is thought to be a

function of the wealth effect created by a strong stock market, as well as the 1993 repeal of the luxury tax on boats

valued at over $100,000. Because of the potential volatility in the stock market, zero growth is used as the low

forecast. As a high forecast, an increase in sales of inboard cruisers of three percent is assumed. These two growth

rates reflect the recent history of increased sales but assumes a leveling off of the growth rate based on potential

volatility of stock market returns. Exports in the inboard cruiser segment are assumed constant at 500 boats per

year. The import share of domestic sales was approximately 10% for the early part of this decade. In 1997, it fell

to 5.6%. A six percent import share for this sector is projected to 2002.

Using the lowt growth rate, a slight decline in production is predicted for this sector. Based on the high growth

rate of three percent, an increase in annual production of almost 900 boats by the year 2002 is projected.

2.9.2g Jet Boats

Jet boat sales increased substantially after introduction in the early 1990s and have declined in recent years. No

reliable information was available on exports or imports of jet boats. A high growth in domestic sales of 10% is

estimated and low growth rate of two percent for this sector. 

Using the low two percent growth rate, it is expected that an additional 11,200 jet boats per year will be sold in the

U.S. by 2002. Based on the high forecast, there will be an additional 17,100 jet boats sold annually by 2002. 

Some of these jet boats are expected to be imported and the increase in annual domestic production could be less

than the increase in domestic sales.

2.9.2h Sailboats

Data on sailboat production were only available from 1991-1997. Domestic sales of sailboats rose substantially

between 1992 and 1994 but have tapered off since. A low forecast of one percent was used, with a high forecast

rate of two percent. Exports are projected to remain at about 7,000 boats per year and the import share is projected

to remain constant at 24% of domestic sales.

Using a one percent growth rate, it is predicted that a growth of annual production of 4,600 boats by 2002 will

occur. Based on the high growth rate of two percent, sailboat production will increase by 5,200 boats over that

time frame.
Chapter 3 Compliance Costs 3-1

3. Compliance Costs

3.1 Introduction

The NESHAP for the Boat Manufacturing source category regulates emissions of hazardous air pollutants (HAPs)

resulting from the boat manufacturing process. Facilities that are considered major sources of HAP emissions in

this industry will be required to change their material use and/or production processes to attain a level of emissions

control equal to the maximum achievable control technology (MACT) floor. Costs of reducing HAP emissions to

the MACT floor are estimated for each of these potentially affected facilities.

The economic impact analysis (EIA) relies on the estimate of the facility-level costs of complying with the proposed

regulation to determine how the producers and consumers in the market will react to the regulation (See Chapter 4)

. This chapter summarizes the procedure used to estimate facility-level compliance costs. The document entitled,

“Final Cost Procedures Documentation Memorandum” (U.S. EPA, 1999) contains a detailed description of how

facility-level compliance costs are calculated.

The compliance cost estimation procedure has the following steps:

ò Determine which facilities are likely to be required to comply with the regulation. EPA used data from the

Toxic Release Inventory (TRI) to determine which boat manufacturing facilities were likely to be required

to comply with the proposed regulation. EPA assumed that all facilities in SIC 3732 “Boat Manufacturing

and Repair” that are major sources of styrene emissions in TRI will be required to comply with the rule. 

ò Determine potential emission points, where an emission point is defined as a material that contains HAPs

and/or a production process that releases HAPs. 

ò For each affected facility, determine if current materials and processes meet the MACT standards at each

emissions point. If current materials and/or processes do not meet the MACT standard then facilities must

switch to materials with a lower HAP content and/or processes that release lower levels of HAPs.

ò For each affected facility, determine the total cost of switching from materials with higher HAP content to

materials with lower HAP content and the cost of changing production processes to release lower levels of

HAPs.

ò Transform the total facility-level compliance cost into total fixed costs and variable costs per boat

produced. These are the two facility-level cost components used as inputs to the EIA. 

Section 3.2 lists the different emissions points and describes how EPA determined if a facility’s current materials

and/or processes meet the MACT floor for HAP emissions. The costs of switching materials and processes are

described in Section 3.3. Section 3.4 describes the methodology for converting total compliance costs into fixed

costs and variable costs per boat produced.

3.2 Facility-level Emissions

EPA determined that there were 12 potential emission points for HAPs in the boat manufacturing process. These

12 emissions points fall in two broad categories: production materials that contain HAPs, and production processes

that release HAPs. 
Chapter 3 Compliance Costs 3-2

ò Production materials the contain HAPs:

< Production resin

< Tooling resin

< Pigmented gel coat

< Clear gel coat

< Basecoat gel coat

< Tooling gel coat

< Resin and gel coat application equipment cleaning solvents

< Resin and gel coat mixing container covers

< Aluminum wipedown and surface preparation solvents

< Aluminum boat hull and deck coatings

< Carpet and fabric adhesives

ò Production processes the release HAPs:

< Resin atomized spray guns

In addition to these 12 emissions points, EPA estimated monitoring, recordkeeping, and reporting (MRR) costs and

the cost of testing new production materials to insure that they will meet performance standards.

The facility-level cost of compliance is estimated as the sum of the costs of complying with the MACT floor at each

of the potential emissions points. For the purpose of this analysis, facilities that do not meet the MACT floor must

switch to materials that contain lower levels of HAPs and/or switch to production processes that release lower

levels of HAPS at every emission point for which current practices are not sufficient. Because the proposed

NESHAP will probably allow emissions averaging among some types of materials and processes some facilities

may reduce their cost of complying with the rule by reducing emissions more than required at emissions points

where reductions are achieved relatively inexpensively and reducing emissions less than required at emissions points

where reductions are relatively costly. The estimated costs of complying with the proposed NESHAP do not

consider any potential cost reductions from emissions averaging. It is difficult to determine how particular facilities

will implement the variety of options of emissions averaging or whether they will use it to achieve greater operating

flexibility at the same regulatory cost. Therefore, the estimated compliance costs are an upper-bound estimate in

that we assume that no facilities will use emissions averaging. 

EPA conducted a survey of approximately one-third of the major source boat manufacturing facilities. Detailed

data on the specific materials and the HAP content of those materials used was obtained for each of the surveyed

facilities. The survey also requested information on the amount of material used or the number of processes used
Chapter 3 Compliance Costs 3-3

for the surveyed facilities. Thus, for approximately one-third of the affected facilities, we could use survey data to

determine whether current materials and/or processes meet the MACT floor for HAPs emissions at each emission

point. If a facility did not meet the HAP floor at a given emissions point, we used data from the survey to

determine the amount of material or the number of production processes that would need to be changed to insure

compliance with the rule.

For the remaining two-thirds of the facilities, we did not have data on the type and HAP content of materials

currently used nor did we have information on the amount of materials and number of processes used. For the bulk

of facilities, we only had data on reported styrene emissions in TRI. For these non-surveyed facilities we estimated

both the HAP content of the materials used and the amount of material and number of processes used as discussed

below.

ò HAP content: Because the HAP content of the materials currently used by non-surveyed facilities is

unknown, the analysis assumes that all of the non-survey facilities will need to switch to lower HAP

materials, or change processes to comply with standards based on the MACT floor at all 12 emissions

points. This approach overestimates the costs of compliance for at least some of the non-surveyed

facilities. 

ò Amount of material/processes used: EPA used data on the amount of materials and processes from the

surveyed facilities and data on total styrene emissions levels from both the surveyed and non-surveyed

facilities to impute the amount of materials and the number of processes used by the non-surveyed

facilities. For each of the 11 materials-based emissions points, EPA estimated a relationship between total

styrene emissions and total material use for the surveyed facilities. This relationship was then applied to

the non-surveyed facilities based on the total styrene emissions reported in TRI to obtain an estimate of the

amount of materials used by the non-surveyed facilities. For the process-based emission point, EPA used a

similar estimation procedure to infer the number of atomized resin spray guns used at non-surveyed

facilities. 

3.3 Compliance Costs

There are four categories of compliance costs that a facility could potentially incur under the proposed rule:

ò Switching production materials,

ò Changing production processes;

ò Monitoring, recordkeeping and reporting; and

ò Testing new production materials.

Eleven of the 12 emissions points listed in Section 3.2 involve potential changes in materials used by an affected

facility. The procedure used to estimate the cost of switching to materials with lower HAP content is addressed in

Section 3.3.1. One of the emissions points–resin application technology–is a process-based emission point and is

addressed separately in Section 3.3.2 below. The estimation of monitoring, recordkeeping, and reporting (MRR)

costs is addressed in Section 3.3.3. Materials testing costs are the subject of Section 3.3.4.

3.3.1 Materials Switching Costs
Chapter 3 Compliance Costs 3-4

EPA estimated the facility-level materials costs at each emission point by determining what the cost of switching to

materials with a lower HAP content would be and then summing the switching costs for all emission points. If a

facility’s current materials satisfy the MACT floor at a given emission point then the switching cost is zero for that

particular emission point. 

The cost of switching materials (e.g., resins) were estimated as the difference in list prices between materials with a

higher HAP content and the lowest-priced material with a HAP content at or below the MACT floor. This cost

difference was calculated separately for materials used at each emission point. The list prices were obtained from

material vendors. The analysis uses list prices because actual prices are variable among facilities depending on the

amount purchased, often according to proprietary pricing agreements. 

For each emissions point, facilities were grouped into three categories based on the amount of information obtained

by EPA on materials use and cost:

ò Surveyed facilities for which the type of material, HAP content, and list price were known;

ò Surveyed facilities for which the type of material and HAP content were known but for which the list price

was not available; and

ò Non-surveyed facilities.

For the surveyed facilities where the list price of current materials was known EPA calculated the switching cost as

the cost of the current material minus the cost of the least-expensive material with a HAP content at or below the

MACT floor. 

For surveyed facilities where the price of the material currently used is unknown, EPA developed a default cost of

switching. The default cost difference is the average cost difference between all materials with a HAP content

above the MACT floor and the lowest priced material with a HAP content at or below the floor. For example, a

default cost might be calculated as the average cost difference for all materials with a HAP content above 35% and

the lowest priced material with a HAP content below 35%. The total amount of material used by surveyed facilities

was multiplied by this default cost to obtain the total switching cost.

For non-surveyed facilities, EPA does not know the HAP content of the material currently used. The switching cost

for non-surveyed facilities was imputed from the data from surveyed facilities. For each of the surveyed facilities

EPA divided the total switching cost by the number of units of material used to obtain an average switching cost

per unit of material used. The estimated amount of material used by a non-survey facility was then multiplied by

this average switching cost per unit material used to estimate the cost of switching for non-surveyed facilities.

3.3.2 Process Change Costs

The only process change considered by the proposed rule is a change in resin application technology from atomized

spray guns to non-atomized flowcoaters. The cost of complying with the requirements for non-atomized resin

application has four elements.

ò The cost to switch from atomized resin spray guns to non-atomized resin flowcoaters.
Chapter 3 Compliance Costs 3-5

ò The cost savings from the reduced need for personal protective equipment (PPE) with non-atomized resin

application system.

ò The cost savings from reduced resin consumption because of the greater transfer efficiency of flowcoaters

compared to spray guns.

ò The cost savings from the reduced use of floor coverings associated with reduced resin overspray. 

EPA estimated the cost of switching to flowcoaters from spray guns as the net annual difference in cost between a

facility that continues to use spray guns, and the same facility switching from spray guns to flowcoaters before the

spray guns have reached the end of their useful economic life. That is, the costs are estimated for the same plant

under two scenarios: (1) the plant operates spray guns in the absence of the rule and (2) the same plant must switch

to flowcoaters while the spray guns are still functional. 

This net cost difference was estimated for each of the surveyed facilities. EPA used the results from the surveyed

facilities to estimate costs for the non-surveyed facilities.

For each surveyed facility EPA knew the number of spray-guns currently in use. EPA assumed that all spray guns

are halfway through their economic life at the time the regulation takes effect. The cost analysis covers a 10 year

period. Using this time frame, EPA calculated the difference in total capital costs, operating and maintenance

costs, net of the costs savings such as reduced PPE costs and reduced floor covering costs for both spray guns and

flowcoaters. The difference in these costs is the cost of switching from spray guns to flowcoaters.

The flowcoaters themselves require an initial capital outlay and are slightly more expensive to operate and

maintain. However, EPA estimates that the majority of survey facilities will experience overall cost savings when

floor covering and resin cost savings are added to the flowcoater cost impacts. If the net cost (capital and OM

costs less the cost savings) was negative for a given surveyed facility, the total cost of switching from spray guns to

flowcoaters was assumed to be zero. We assumed that if a facility is expected to see an overall cost saving from

changing production processes, the facility will make this change voluntarily when the current capital associated

with the process depreciates. Thus, the cost savings are not directly attributable to the regulation and should not be

used to offset cost impacts for other regulated materials, such as gel coats or adhesives. 

For non-surveyed facilities, we assumed the cost impact for switching to flowcoaters was zero because the majority

of surveyed facilities had no net cost increase from changing this production process. 

3.3.3 Monitoring, Recordkeeping, and Reporting (MRR) Costs

The cost analysis includes an estimate of the additional managerial and clerical hours needed for monitoring,

recordkeeping, and reporting (MRR) based on the compliance activities required. EPA estimated that there are 11

manufacturing operations that could have separate MRR costs. Total managerial and clerical hours were

calculated separately for each operation. 

Surveyed facilities were assigned the average annual MRR cost for all operations currently performed at the

facility. The average annual hours was based on the estimated hours required during the first 3 years of

compliance. The estimated hours in the first year are higher than those in the second and third years because of

hours needed to learn the rule and set up recordkeeping systems (e.g., spreadsheets) for monitoring compliance.

Total MRR costs were determined by multiplying the average annual management and clerical hours by the

associated labor rate for that category taken from the Bureau of Labor Statistics. Non-surveyed facilities were
Chapter 3 Compliance Costs 3-6

assigned the average annual MRR cost for all the surveyed facilities.

3.3.4 Materials Testing Costs

EPA included costs for testing the physical properties of materials for each facility that has to switch materials at

one or more emission point. The purpose of the tests is to insure that the new materials that meet the MACT floor

requirements for HAP content also satisfy the facility’s production needs. Tests will likely focus on finding a

material with a HAP content at or below the MACT floor that maintains the quality of the final product.

Testing costs were estimated for facilities switching any of their production resins, tooling resins, pigmented gel

coats, clear gel coats and/or tooling gel coats to low-HAP materials. No testing costs were calculated for basecoat

gel coats because they are “work-off” products made from other surplus gel coats. The analysis assumed that

facilities will need to perform three tests per material to find a suitable low-HAP replacement for higher-HAP

materials. 

Facilities were assigned testing costs for every emissions point where the facility is expected to change the material

used. The total testing costs at the facility was then annualized over 10 years. These costs may be over-estimated

for some facilities for the following three reasons.

ò The facility may rely on performance data provided by the material supplier, rather than doing their own

tests.

ò The material supplier may test samples prepared by the boat manufacturer and incur the cost of testing.

ò If several facilities are operated by the same company, only one series of tests may be needed for materials

that are used at all facilities.

3.4 Unit Compliance Costs

The total “engineering” costs sum to $15.4 million per year. The economic model uses this information as inputs to

determine the total social cost of the rule (i.e., taking into account the reactions in the boat markets by producers

and consumers. There are two compliance costs inputs to the economic analysis presented in Chapter 4:

ò Facility-level variable compliance costs per boat produced, and

ò Facility-level fixed compliance costs.

The categories of costs described in Sections 3.3.1 to 3.3.3 (i.e., material switching, process changes and MRR

costs) are all variable compliance costs, meaning those costs that vary with the level of production at a given

facility. The materials testing costs described in Section 3.3.4 are fixed costs, meaning those costs that will be

incurred at the same level regardless of the level production at the facility as long as the facility remains in

operation. 

The sum of the materials switching costs, the process change costs and the MRR costs is the total variable

compliance costs for each facility. However, the variable compliance cost per boat produced is the necessary input

to the economic model. EPA estimated the number of boats produced at each facility and used these estimates to

transform total variable compliance costs into variable costs per boat produced.
Chapter 3 Compliance Costs 3-7

For each facility, EPA had an estimate of facility-level sales and information on the type of boat(s) produced at the

facility (See Appendix A). The National Marine Manufacturers Association (NMMA) publishes data annually on

the average price of a boat by boat type. EPA used the facility-level sales estimates and the average price per boat

to estimate the total number of boats produced at each affected facility. For each facility, EPA calculated unit

variable compliance costs by dividing the total variable compliance cost by the total number of boats produced. 

The testing costs are the only fixed cost of compliance. These costs do not need to be transformed into unit costs

for the EIA.

Table 3-1 provides cost information for all facilities for which costs were estimated. The data provided includes,

the type of boat(s) produced, total variable costs, variable cost per unit produced, and total fixed costs.
Chapter 3 Compliance Costs 3-8

Table 3-1: Compliance Cost Per Facility

Facility ID Type of Boat Total Variable

Cost

Total Variable

Cost per Unit

 Total Fixed Cost 

1 Outboard $31,755 $18 $5,126

2 Outboard, Sterndrive, Inboard Cruisers $228,654 $82 $3,844

5 Outboard, Inboard Runabout, Sterndrive $116,433 $40 $1,281

6 Outboard, Inboard Runabout, Sterndrive $48,503 $33 $1,281

7 Outboard, Inboard Runabout, Sterndrive $27,641 $13 $1,281

8 Outboard, Inboard Runabout, Sterndrive $73,336 $28 $1,281

9 Outboard, Inboard Runabout, Sterndrive $46,019 $27 $1,281

10 Outboard, Inboard Runabout, Sterndrive $127,438 $19 $1,281

11 Outboard, Inboard Runabout, Sterndrive $66,741 $63 $1,281

12 Sailboats $31,553 $55 $5,126

13 Outboard, Inboard Runabout $59,128 $10 $2,563

14 Outboard, Inboard Runabout $107,709 $108 $5,126

15 Inboard Runabout $38,836 $126 $2,563

16 Outboard, Sterndrive, Inboard Cruisers $401,183 $133 $5,126

17 Sterndrive $155,745 $93 $3,844

18 Sailboats $36,378 $47 $5,126

19 Outboard, Sterndrive $77,739 $47 $3,844

20 Outboard $34,379 $68 $2,563

21 Outboard $116,318 $24 $3,844

22 Outboard $72,576 $6 $2,563

23 Jet Boats $77,906 $18 $3,844

25 Outboard $323,871 $35 $6,407

26 Inboard Cruisers $29,939 $93 $2,563

27 Sailboats $31,549 $28 $3,844

28 Outboard $109,033 $59 $5,126

29 Sterndrive, Inboard Cruisers $78,535 $96 $3,844

33 Outboard, Inboard Runabout, Sterndrive,

Jet Boats

$32,777 $4 $5,126

34 Outboard $26,384 $55 $5,126

35 Sailboats $31,021 $73 $3,844

36 Outboard $86,285 $10 $5,126

37 Outboard, Sterndrive, Canoe $147,863 $15 $3,844

38 Inboard Runabout, Inboard Cruisers $340,591 $705 $5,126

39 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$49,232 $51 $3,844

40 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$38,467 $21 $2,563

41 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$21,116 $18 $2,563

42 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$88,830 $45 $3,844

43 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$43,264 $18 $2,563

44 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$176,150 $953 $1,281

45 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$91,088 $197 $3,844

46 Inboard Runabout, Sterndrive, Inboard

Cruisers, Jet Boats

$71,586 $33 $3,844

47 Sterndrive, Inboard Cruisers $16,799 $10 $2,563
Table 3-1: Compliance Cost Per Facility

Facility ID Type of Boat Total Variable

Cost

Total Variable

Cost per Unit

 Total Fixed Cost 

Chapter 3 Compliance Costs 3-9

48 Sailboats $220,935 $69 $3,844

49 Outboard $188,977 $45 $5,126

51 Outboard, Sterndrive, Inboard Cruisers $241,317 $634 $5,126

52 Outboard, Sterndrive, Inboard Cruisers $163,846 $165 $2,563

53 Outboard $117,661 $32 $5,126

54 Outboard, Inboard Runabout, Sterndrive $122,909 $23 $3,844

101 Inboard Cruisers $65,048 $689 $5,126

103 Sterndrive $181,781 $98 $5,126

106 PWC, Jet Boats $70,375 $2 $2,563

109 Sailboats $42,589 $38 $6,407

110 Sailboats $23,993 $76 $5,126

112 Sterndrive $141,725 $68 $2,563

113 Outboard, Sterndrive $276,649 $202 $6,407

115 Outboard $46,380 $37 $6,407

120 Outboard $37,725 $244 $3,844

121 PWC $64,995 $1 $5,126

124 Inboard Cruisers $67,359 $3,187 $5,126

201 Outboard $71,133 $82 $5,126

202 Outboard $68,856 $65 $6,407

203 Outboard $67,594 $96 $6,407

205 Inboard Runabout $60,686 $181 $5,126

207 Outboard, Inboard Runabout, Sterndrive $82,891 $35 $5,126

208 Inboard Cruisers $55,983 $4,236 $5,126

209 Sailboats $40,854 $140 $5,126

211 Outboard $49,649 $294 $6,407

213 Outboard $85,771 $61 $6,407

214 Inboard Runabout, Inboard Cruisers $78,769 $833 $5,126

218 Inboard Runabout, Sterndrive $97,438 $64 $6,407

219 Outboard, Inboard Runabout, Sterndrive $132,144 $49 $6,407

221 Outboard $47,690 $68 $5,126

222 Outboard $52,135 $93 $5,126

223 Sailboats $120,145 $71 $5,126

226 Sterndrive, Jet Boats $41,247 $110 $5,126

227 Outboard, Inboard Runabout, Jet Boats $214,446 $21 $6,407

228 Outboard, Inboard Runabout $96,351 $130 $5,126

230 Outboard, Sterndrive $117,085 $97 $6,407

231 Outboard $211,664 $167 $6,407

232 Sterndrive $348,848 $116 $5,126

233 Sterndrive, Inboard Cruisers $535,375 $343 $5,126

235 Sterndrive $181,040 $90 $6,407

236 Sterndrive $40,449 $20 $6,407

238 Outboard, Sterndrive $144,102 $46 $6,407

239 Sterndrive, Inboard Cruisers $106,067 $292 $5,126

240 Outboard $55,787 $8 $6,407

241 Outboard, Sterndrive, Canoe $178,025 $27 $6,407

242 Sterndrive, Inboard Cruisers $141,474 $179 $5,126

243 Outboard, Sterndrive $45,472 $169 $5,126

245 Outboard, Sterndrive, Jet Boats $46,395 $45 $5,126
Table 3-1: Compliance Cost Per Facility

Facility ID Type of Boat Total Variable

Cost

Total Variable

Cost per Unit

 Total Fixed Cost 

Chapter 3 Compliance Costs 3-10

247 Outboard $44,284 $14 $5,126

248 Sterndrive $39,395 $177 $5,126

249 Outboard, Inboard Runabout $172,142 $31 $5,126

250 Inboard Runabout $37,179 $189 $5,126

251 Outboard $41,802 $48 $6,407

252 Outboard $145,560 $86 $6,407

253 Inboard Runabout, Sterndrive $50,624 $163 $5,126

254 Outboard, Sterndrive $267,339 $178 $0

255 Outboard, Sterndrive, Inboard Cruisers $179,433 $75 $5,126

257 Outboard $41,878 $299 $6,407

258 Outboard $73,043 $104 $5,126

260 Inboard Runabout $44,182 $58 $5,126

262 Inboard Runabout $136,837 $102 $5,126

263 Inboard Runabout, Inboard Cruisers $77,748 $187 $5,126

265 Inboard Runabout, Sterndrive $36,558 $103 $5,126

266 Sterndrive $62,324 $45 $6,407

267 Inboard Runabout $45,062 $2,015 $5,126

270 Sailboats $107,107 $142 $5,126

271 Sterndrive $84,762 $119 $5,126

274 Outboard $46,245 $143 $6,407

275 Outboard, Sterndrive $56,166 $122 $5,126

276 Outboard $159,478 $61 $5,126

277 Outboard $38,086 $309 $6,407

1000 Outboard, Sterndrive $336,492 $170 $0

2000 Outboard $11,639 $2 $0

4000 Outboard, Canoe $6,802 $7 $0

5000 Outboard $24,919 $3 $0

6000 Outboard $10,051 $2 $0

7000 Outboard, Sterndrive, Canoe $11,639 $1 $0

11000 Outboard, Sterndrive, Canoe $12,499 $3 $0

13000 Outboard $644,030 $389 $0

3A Outboard, Sterndrive, Inboard Cruisers $134,753 $32 $926

3B Outboard, Sterndrive, Inboard Cruisers $51,715 $32 $355

4A Outboard, Inboard Runabout, Sterndrive $62,122 $12 $729

4B Outboard, Inboard Runabout, Sterndrive $24,025 $12 $282

4C Outboard, Inboard Runabout, Sterndrive $23,065 $12 $271

Not Included in Economic Model

116 Ships $108,955 #N/A $3,844

119 PWC Components $34,773 #N/A $5,126

122 PFC Parts $125,107 #N/A $5,126

123 Boat Parts $39,382 #N/A $5,126

126 Ships $102,542 #N/A $5,126

Total $13,251,923 $544,613
Chapter 4 Economic Impacts 4-1

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g

h

4. Economic Impacts

4.1 Introduction

The compliance costs outlined in Chapter 3 represent the direct impact of the proposed rule on individual boat

manufacturing facilities that are major sources of HAP emissions. The analysis presented in this chapter estimates

the net social burden of the regulation, taking into account market adjustments to the rule. The social burden

includes the compliance costs but also takes into account other factors, such as the loss consumers incur when boat

prices rise, the loss both consumers and affected producers incur when fewer boats are produced, and increases in

profits for unaffected producers who enjoy higher market prices without any additional costs. This social burden or

cost is weighed by policymakers against the social gains associated with the regulation, including the value of

reduced impacts on human health and the environment, when evaluating regulatory options. 

Facility-level compliance costs vary based on characteristics of the boat-producing facilities, such as the amount

and type of resin used. Social costs vary based on characteristics of markets in which these facilities participate. 

At the market level, the imposition of compliance costs on some boat producers adds to the cost of producing a

boat, and thus results in an upward shift of the market supply curve. In a perfectly competitive market, the supply

curve measures the marginal cost of supplying boats to the market as a function of the quantity supplied. The area

under the supply curve from 0 to any number, Q, measures the total cost of supplying Q boats. An upward shift in

the supply curve means that it costs more to supply a given quantity of boats. This is what we would expect if

some producers have to switch to lower HAP technologies. The demand for boats measures the quantity of boats

consumers will purchase as a function of the price of boats, assuming all else is held constant. The demand for

boats is unchanged by the regulation. Figure 4-1 below graphically presents the impact of the regulation on the

market for boats. Note that the shift in the supply curve results in an increase in price and a decrease in the

quantity of boats sold.

Figure 4-1. Market Model
3The EIA focuses on the social costs to U.S. producers and consumers only. As a result, the social

cost is calculated as the change in producer and consumer surplus for U.S. producers and U.S. consumers.

Chapter 4 Economic Impacts 4-2

The imposition of compliance costs on boat producers results in three types of cost:

ò Change in Consumer Surplus: Consumer surplus measures the difference between what consumers are

willing to pay and what they actually pay for a product. When the supply curve shifts up and the price of

boats increases, consumer surplus changes by a portion of the externalized cost. The change in consumer

surplus is represented by the area abch in Figure 4-1.

ò Change in Producer Surplus: Producer surplus measures the difference between what it costs suppliers to

produce the boats they sell and the revenue they receive from selling these boats – their economic profit. 

When compliance costs are imposed, some producer surplus is gained if the price received increases, and

some producer surplus is lost because the cost of producing boats also increases as producers internalize

the cost of pollution. Although unaffected producers enjoy a gain in surplus, the loss from producers who

must comply with the regulation outweighs these gains so there is a net loss in producer surplus. The loss

of producer surplus is represented by the area fceg in Figure 4-1. 

ò Deadweight loss: The loss in consumer and producer surplus for units that would have been produced

before the regulation but are no longer being produced is called deadweight loss. Notice that the

deadweight loss is comprised of some loss in consumer surplus and some loss in producer surplus. The

deadweight loss is not an additional type of loss but rather is a component of lost consumer and producer

surplus. The deadweight loss is represented as area bcd in Figure 4-1.

The total social costs of the regulation can be estimated as the sum of the loss in producer and consumer surplus

(areas abch plus fceg in Figure 4-1) minus whatever surplus is transferred from consumers to producers (area abeh

in Figure 4-1)3. Section 4.2 presents the methodology for translating this theoretical framework into actual models

for calculating the social cost of the boat manufacturing NESHAP. The results of the social cost analysis are

presented in Section 4.3. The social cost analysis contains information on the effects of the regulation on domestic

producers and consumers and the effect on international trade.

In addition to the social cost analysis, the EIA addresses other issues of concern to policy makers – in particular,

the effects of the rule on employment and on facility closures. Section 4.4 addresses the employment effects of the

regulation, and Section 4.5 addresses facility closures. 

4.2 Methodology

An important underlying assumption in the framework for calculating the social cost of a regulation as outlined in

the previous section is that the market for boats is perfectly competitive. In a perfectly competitive market,

homogenous goods are sold at one price. Individual producers cannot affect the price of the product they sell by

strategically altering output. Producers are willing to supply boats to the market as long as the market price is

greater than or equal to their cost of production. It would be difficult to argue that the overall market for boats is

perfectly competitive. Different categories of boats offer very different amenities and sell for a wide range of

prices. Yachts and PWCs, for example, cannot be modeled as a homogeneous good selling for a single market

price. 

However, analyzing specific boat sub-markets as competitive markets is more reasonable. We developed models

for six different segments of the boat market: outboard motor boats; inboard runabouts and sterndrive motorboats;
4Note that we have not assumed a functional form for the supply curve. Because we are interested

in small (marginal) changes around the baseline equilibrium, equation(1)-(2) will hold for any functional

form of the market supply curve that is approximately linear in the neighborhood of the equilibrium.

Chapter 4 Economic Impacts 4-3

yachts; personal watercraft and jet boats; sailboats; and canoes. While some product differentiation and price

differentiation still occurs for these product groups, modeling these more homogeneous markets in a perfectly

competitive framework provides a reasonable approximation of likely market adjustments in these markets. 

For each market segment, domestic and foreign demand and supply, including the non-regulated portion of domestic

supply, was modeled explicitly. These supply and demand models were then used to estimate changes in market

price and quantity produced and sold, as well as changes in producer and consumer surplus. The remainder of this

section outlines the specific assumptions and calculations required to determine the impact of the regulation on each

market segment. Sections 4.2.1 and 4.2.2 discuss domestic and foreign supply, respectively. Sections 4.2.3 and

4.2.4 discuss domestic and foreign demand. Section 4.2.5 provides the equilibrium conditions that solve the model. 

Finally, Section 4.2.6 discusses the calculation of the social cost of the regulation.

4.2.1 Domestic Supply

Not all boat manufacturing facilities in the industry will be impacted by the rule. As a result, there are two groups

of facilities that need to be considered – facilities that will be required to comply with the MACT standards, and

facilities that will not incur costs under the MACT standards.

Facilities that are subject to the MACT standards will incur compliance costs which vary by facility. A given

facility’s supply response to increased costs depends on the facility’s cost structure, and is measured by its

elasticity of supply. The elasticity of supply measures the percentage change in quantity supplied given a one

percent change in price. Firms with a high elasticity of supply will react more to changing market prices, by

expanding or contracting output, than firms with a low elasticity of supply. For example, an elasticity of supply of

2 means that if the price of the product increases by one percent the firm will increase the quantity supplied by two

percent.

Under the assumption of perfect competition, the change in production at each individual facility can be calculated

as4:

ŒQij

SD = eij*(Qij0/Pj0)*(ŒPj

 - cij), (1)

where

ŒQij

SD = the change in quantity supplied by domestic facility i of product j

eij = the elasticity of supply (% change in quantity supplied resulting from a 1% change in price) for

product j at facility i

Qij0 = the baseline quantity of product j supplied by facility i

Pj0 = the baseline price of product j

ŒPj = the change in price of product j

cij = average compliance cost for facility i for product j.

The same equation can be used to model the change in quantity supplied for facilities that do not incur additional

costs under the MACT standards, but for these facilities the compliance cost term (cij) is zero. This equation shows

that the actual change in quantity supplied by each facility is a function of the facility’s elasticity of supply, its

baseline production level and price, and its compliance costs. 
Chapter 4 Economic Impacts 4-4

For each facility identified as a major source of styrene emissions in TRI, we estimated the number of boats

produced in the baseline (Qij0). These estimates were calculated by dividing estimated facility-level sales by the

average price for the given boat type (as derived in the Industry Profile, Chapter 2). Appendix A of this document

describes the facility-level sales estimations in detail. 

We also have estimates of the total compliance costs for each facility (Ci) and assume that these costs are incurred

equally for all boat types produced at the facility (cij = Ci/Qi0). The average price per boat by boat type is used as

an estimate of the baseline market price (Pj0). The elasticity of supply at each individual facility is unknown. The

base case estimates assume that the elasticity of supply for each facility equals the elasticity of supply for the entire

market. Further, in the absence of previous studies of supply responses in the boat manufacturing industry, the

market supply elasticity is assumed to be one. This means that when prices change by one percent, market-level

quantity supplied changes by one percent as well. This assumes that the facility-level marginal supply response is

the same for all facilities in the vicinity of their baseline output. Appendix B presents a sensitivity analysis to

determine how changes in the elasticity assumption affect the total impact of the MACT regulation. 

Facilities will have different total output responses because their compliance costs vary. Equation (1) shows that if

the unit compliance costs are greater than the change in price for a given facility, then the facility’s quantity

supplied will decrease. If the unit compliance costs are less than the change in price then the facility’s quantity

supplied will increase.

Data on non-impacted facilities are not available at the facility level. We therefore model non-impacted facilities as

a single sector. Given the data on the total number of boats produced domestically in Chapter 2 and estimates of

the number of boats produced by affected facilities, we calculate the difference between the total number of

domestically produced boats and the number produced by affected facilities to derive the baseline quantity supplied

by the non-impacted sector. The compliance cost for the non-impacted sector is zero and the elasticity of supply for

this sector is assumed to be one.

4.2.2 Foreign Supply to the U.S. Market

Imports are an important source of competition in certain boat markets and modeling the foreign supply response to

changing market conditions in the United States is necessary to correctly identify the impacts of the MACT

standards. However, we do not have the data required to determine the distribution of impacts across different

foreign producers. As a result, we model foreign supply as a single sector. 

The change in foreign supply can be calculated using the following equation:

ŒQj

SF = ej*(Qj0F

/Pj0)*ŒPj, (2)

where

ŒQj

SF = the change in quantity of product j supplied by foreign firms

ej = the elasticity of foreign supply (% change in quantity supplied resulting from a 1% increase in

price) for product j

Qj0 = the baseline quantity of product j supplied by foreign firms

Pj0 = the baseline price of product j

ŒPj = the change in price of product j

We have data from the International Trade Commission (ITC) on the total number of imports by boat type (See

Chapter 2). The foreign supply sector is assumed to supply a baseline quantity equal to total imports of boats. 

Information on the elasticity of foreign supply was not available, and we therefore assumed that the elasticity of
5As with the market supply curve, the demand equations (3)-(4) are valid for any functional form

of the market demand curve that is approximately linear in the neighborhood of the baseline equilibrium for

small changes in price and quantity.

Chapter 4 Economic Impacts 4-5

supply is one. Again, we conduct a sensitivity analysis to determine the responsiveness of the model results to the

assumption about foreign supply elasticity. This sensitivity analysis is presented in Appendix B.

4.2.3 Domestic Demand

Domestic demand for boats is a function of various factors, such as the price of boats, the income of boat

consumers, and the preferences of boat consumers. We assume that all factors other than price are constant in the

short-run. Under this assumption, the change in quantity demanded resulting from the regulation can be calculated

using the following equation5:

ŒQj

DD = EjD

*(Qj0/Pj0)*ŒPj (3)

where

ŒQj

DD

 = the change in quantity demanded by domestic consumers of product j

Ej

D

 = the domestic elasticity of demand (% change in quantity demanded resulting from a 1% increase in

price) for product j 

Qj0 = the baseline quantity of domestic demand for product j

Pj0 = the baseline price of product j

ŒPj = the change in price of product j.

The total number of boats sold domestically is the estimated baseline domestic demand (see Chapter 2). The

average price of boats by boat type is used as the baseline market price.

The elasticity of demand represents the percentage change in quantity demanded given a one percent increase in

price. The degree to which firms can pass on cost increases to consumers is determined by the elasticity of demand. 

All other things equal, firms that face a more price elastic demand function will be forced to absorb more of the cost

of compliance. Unless demand is perfectly elastic, however, some of the compliance costs will be passed on to

consumers in the form of higher prices. Because the elasticity of demand is negative (the quantity demanded varies

inversely with price), more elastic demand curves have lower (more negative) elasticities. 

Elasticity of demand for boats was estimated econometrically in Raboy, 1987. The elasticity of demand for all

boats was estimated to be -1.78. However, the elasticity of demand varies by boat type, ranging from -1.4 for

auxiliary-powered sailboats over 30 ft to -2.17 for inboard runabouts. The elasticity of demand estimates are

given in Table 4-1. 
Chapter 4 Economic Impacts 4-6

Table 4-1: Elasticity of Demand Estimates by Boat Type

Outboard boats -2.02

Inboard runabouts -2.17

Sterndrive boats -1.90

Inboard Cruisers -1.44

Sailboats, non-powered Elasticity estimate not statistically significant

Sailboats, auxiliary-powered, less than 30 feet -1.90

Sailboats, auxiliary-powered, over 30 feet -1.40

All Boats -1.78

Source: Raboy, David G., 1987. “Results of an Economic Analysis of Proposed Excise Taxes on Boats” mimeo, (Washington, D.C.:

Patton, Boggs and Blow). Prepared for the National Marine Manufacturers Association, Chicago, Illinois.

These elasticity estimates support a grouping of boat types into six boat markets: 

ò Outboard boats are modeled separately with an initial elasticity of -2.02. 

ò Inboard runabouts and sterndrive boats have similar average (market) prices and similar elasticities of

demand. These boats are widely viewed as substitutes and we model inboard runabouts and sterndrive

motor boats as a single market. The best estimate of the elasticity demand for this product is -2.0. 

ò Inboard Cruisers, or yachts, are modeled as a separate product. The best estimate for the elasticity of

demand is -1.44. 

ò While there appear to be differences in the elasticity of demand for different sizes of sailboats, we do not

have baseline price and quantity data for different sizes of sailboats. As a result, all sailboats are modeled

as a homogenous product with a best estimate of the elasticity of demand of -1.65.

Elasticity estimates are not available for the PWCs and jet boats market segment or for the canoe market segment. 

Based on qualitative data on the demand for these products, we expect that they will have relatively high price

elasticities. In both market segments we will use an initial elasticity of -2.0.

All six markets are characterized by elastic demand functions (elasticity less than -1). This means for a one percent

increase in price, consumers will purchase two percent less in quantity. An increase in price will cause total

revenue to decrease in the boat manufacturing industry because the increase in price will not offset the decrease in

units sold.

4.2.4 Foreign Demand for U.S.-Produced Boats

The U.S. is a net exporter in most of the boat market segments. Foreign demand for U.S.-produced boats responds

to changes in the regulatory environment in the United States according to the following equation:

ŒQj

DF = EjF

*(Qj0

F

/Pj0

F

)*ŒPj (4)
6The analysis does not consider foreign supply to foreign consumers, implicitly assuming that the

foreign market for foreign-produced boats does not affect the foreign market for U.S.-produced boats.

Chapter 4 Economic Impacts 4-7

where

ŒQj

DF = the change in quantity demanded by foreign consumers of product j

Ej

F = the foreign elasticity of demand (% change in quantity demanded resulting from a 1% increase in

price) for product j 

Qj0

F = the baseline quantity of foreign demand for product j

Pj0

F = the baseline price of product j

ŒPj = the change in price of product j.

Data on current exports by boat type presented in Chapter 2) are used as the estimate of baseline foreign quantity

demanded (Qj0

F

). We assume that the boat market is perfectly competitive both domestically and abroad and that

domestic and foreign-produced boats are perfect substitutes. Therefore, the baseline price of domestic boats in the

United States is also the baseline price abroad. We use the average price of boats as an estimate of the baseline

market price. Data on the price elasticities of foreign demand are not available, and we assume these elasticities are

equal to the price elasticities of domestic demand.

4.2.5 Market Equilibrium

In equilibrium, the quantity of boats supplied equals the quantity demanded. Therefore, in changing from the

baseline to the post-compliance equilibrium the change in quantity supplied must equal the change in quantity

demanded.6 Using the equations above this can be stated mathematically as:

ΔQij ΔQ ΔQ ΔQ

SD

i

j

SF

j

DD

j

DF ∑ + = + (5)

where that i refers to the ith domestic facility and j refers to the jth product. Foreign supply is the supply of

foreign-produced boats to U.S. consumers, and foreign demand is the demand by foreign consumers for U.S.-

produced boats. Because there are six products (i.e., six different boat markets), equation (5) is actually a series of

six equations in six unknowns (the six ÄPj’s) which can be solved algebraically.

An Excel spreadsheet model is used to solve these equations. Given the change in compliance costs for affected

firms, the model iterates the change in price (ŒPj) until all of the equations are solved. The model provides the

following results:

ò the change in the market price (ŒPj),

ò the change in the quantity supplied by each of the affected facilities and by the domestic unaffected sector

(ŒQij

SD),

ò the change in the quantity supplied by the foreign supply sector (ŒQj

SF),

ò the change in domestic quantity demanded (ŒQj

DD), and 

ò the change in foreign quantity demanded (ŒQj

DF ).

4.2.6 Social Cost of the Regulation

The social cost of the regulation is approximated by the net change in producer and consumer surplus in all affected

primary, intermediate and final goods markets. In the case of boats, calculating the social cost would involve

determining not just the impact of the regulation on the producer and consumer surplus in the final markets for
7Previously we argued that the supply and demand curves can take on any functional form if we

are interested only in small changes around the baseline equilibrium. When calculating the social cost of

the regulation we are inferring information about the total area under the supply and demand curves, not

just the area around the equilibrium point. Thus, we must assume a functional form for the supply and

demand curves. For simplicity, we have assumed linear supply and demand functions. 

8

If compliance costs fall disproportionately more on the producers of some types of boats than on

others , it is possible that consumers might substitute away to other types of boats. This would shift

demand curves in these markets. We do not have sufficient information to model such shifts in demand

which, in any case, are likely to be very small. We therefore assume that the demand curves in these

markets do not change.

Chapter 4 Economic Impacts 4-8

boats, but the impact on the producer and consumer surplus in the markets for different types of inputs as well. We

do not have data on the spillover impacts that changes in the final market for boats have on input markets. 

However, we expect that overall demand for resins will decrease but that the demand for pollution-reducing resins

will increase. Boat manufacturing is not the primary source of demand for resin inputs and we expect the net effect

of the regulation on input markets to be small. Given that the impact on input markets is small, the social cost of

the regulation can be approximated by calculating the change in producer and consumer surplus in the boat markets

alone. Figure 4-1 above depicts the change in surplus graphically.

The social cost of the regulation resulting from changes in one of the six boat markets analyzed can be estimated

using the following series of equations7:

SCj =ŒPSj + ŒCSj (6)

ŒPSj =3i{ [(Qij1*(ŒPj-cij)) - 0.5*ŒQij*(ŒPj-cij)] - Fij } (7)

ŒCSj = - (Qj1*ŒPj + 0.5*ŒQj

D

*ŒPj) (8)

SCj = social cost resulting from changes in the jth market,

ŒPSj = change in producer surplus in the jth market,

ŒCSj = change in consumer surplus in the jth market,

Qij1 = post-compliance quantity supplied by domestic facility i of product j,

ŒQij

S = change in quantity supplied by domestic facility i of product j,

Qj0 = baseline quantity demanded of product j (domestic),

ŒQj

D = change in quantity demanded of product j (domestic),

ŒPj = change in market price of product j,

cij = variable cost of compliance for domestic facility i for product j,

Fij = fixed cost of compliance for domestic facility i for product j.

The change in social cost is calculated separately for each of the six boat markets and then summed to get the total

change in social costs.8 Appendix C provides the derivation of equations (7) and (8). 

4.3 Results

Overall, we expect that the regulation will increase the market price and decrease the equilibrium quantity of boats

sold. Because facilities incur different compliance costs, the impact of the MACT standards will not be uniform

across facilities. Some facilities will incur a larger share of sales losses and some unaffected facilities are expected
9All compliance cost estimates are provided using post-compliance (market adjusted) output. 

Thus, the total compliance costs may differ from the total presented in the cost analysis presented in

Chapter 3.

Chapter 4 Economic Impacts 4-9

to see their sales increase. As previously mentioned, the price elasticity of demand in all five boat markets is less

than -1, indicating that overall total revenue will decrease as the price of boats increases. All of these distributional

effects are captured in the models.

The following sections present the results of the market-based economic impact analysis for each of the six boat

markets. A summary table of the predicted effects of the proposed regulation is presented in Section 4.3.7, along

with the estimate of the total social cost of the rule.

4.3.1 Outboard Market

The majority of affected facilities (73 of 125) produce outboard boats. A total of $6.7 million will be spent on

compliance costs by facilities in this sector9. This represents less than one percent of the $1.42 billion dollars in

annual sales of outboard boats. 

The costs of complying with the proposed MACT standards are expected to increase the price of an outboard boat

by $10 and decrease the quantity of outboard boats purchased domestically by 589 boats. This represents a 0.1%

increase in price and a 0.3% decrease in domestic sales. 

Imports of outboard boats are predicted to increase very slightly (two additional boats) as foreign competitors take

advantage of the fact that they do not incur compliance costs. Exports of outboard boats will decrease slightly (25

fewer boats). The net effect on total domestic production is a decrease of 616 units produced. This decrease is a

0.3% reduction from the baseline quantity of domestically produced outboard boats.

The social cost of the proposed regulation on the outboard market is determined by summing the change in producer

and consumer surplus. The change in producer surplus represents the increase in revenue on units produced postcompliance, less the total compliance costs paid, less lost profits on units no longer produced. This total for the

outboard market is approximately -$4.6 million (i.e., a decrease in profit of $4.6 million). Of this -$4.6 million, -

$6.7 million is compliance costs and lost profit on units no longer sold and $2.1 million is increased revenue on

units still sold (resulting from higher prices.)

The change in consumer surplus is the welfare loss that results both from the increase in price on outboard boats

and from the decrease in consumption of these boats. The total change in consumer surplus is -$2.0 million for the

outboard boat market. Thus, the total social cost of the regulation on this market segment is $6.6 million. 

The total loss in producer surplus caused by the rule is distributed unevenly among domestic producers. Producers

with higher compliance costs tend to have larger losses in producer surplus. However, producers with average

compliance costs but low sales may also have relatively large losses in surplus because they receive less in revenue

increases on the units sold. Non-affected facilities stand to gain from the regulation and some affected facilities

may also gain if their compliance costs are less than the amount they receive in increased revenue resulting from the

price increase. The average annual facility-level loss of producer surplus for affected facilities is -$66,500 for this

industry, but annual losses range from -$610,000 to +$77,900 for affected facilities. In addition, non-affected

facilities as a sector are expected to gain $273,600 annually from the rule.

4.3.2 Inboard Runabouts/Sterndrive Market
Chapter 4 Economic Impacts 4-10

A total of 74 facilities that produce inboard runabouts or sterndrive boats are considered major sources of HAP

emissions. We estimate that these 74 facilities account for 62% of the revenue in this market segment, while

unaffected domestic producers account for the remaining 38%. The 74 affected facilities will spend $4.8 million in

compliance costs under the proposed rule. This represents less than one percent of the $2.4 billion dollars in

baseline annual sales in this sector. 

Imposition of compliance costs on a large percentage of the facilities in this market is expected to increase the

weighted average price of runabouts/sterndrives by $17 . This is approximately 0.1% of the baseline weighted

average price of $22,476. The increase in price is also expected to decrease the quantity of runabout/sterndrive

boats purchased domestically by 108 boats (-0.1%). Imports are projected to increase by three boats per year

(0.1%), while exports will decrease by 17 boats per year (-0.1%). The net effect on total domestic production is a

decrease of 125 units produced. This decrease is 0.1% of the baseline quantity of domestically-produced inboard

runabout/sterndrive boats.

The social cost of the proposed regulation on the inboard runabouts/sterndrive market is again determined by

summing the change in producer and consumer surplus. Producer surplus in this market segment decreases by

approximately $3.0 million. Of this total -$3.0 million, -$4.8 million in compliance costs is partially offset by a

$1.9 million increase in revenue from the price increase. Consumer surplus decreases by approximately $1.7

million, resulting in a total social cost of $4.7 million for this market segment. 

The total social cost of the rule is not shared equally among affected facilities. The average affected facility has a

loss of producer surplus of -$37,500 but the facility level losses range from -$477,300 to +$30,100. In addition,

the non-affected facilities as a sector are expected to gain $711,600 from the proposed rule.

4.3.3 Inboard Cruiser/Yacht Market

Twenty-seven facilities that produce inboard cruisers and/or yachts are considered major sources of HAPs. These

27 facilities produce 34% of the total units produced domestically in this market. A total of $0.6 million will be

spent on compliance costs by facilities in this sector. These costs are nearly negligible compared to the $1.7 billion

dollars in annual sales of inboard cruisers/yachts.

Given the relatively insignificant compliance burden and the large share of boats produced by non-affected

facilities, the overall market impacts are minimal. The compliance costs are expected to increase the price of a

cruiser/yacht by boats by $35. While this is the largest absolute price increase in any of the six market segments

examined, it is less than 0.1% increase over the average baseline price of $264,937. The effect of the price increase

on the quantity of cruisers/yachts produced domestically, imported and exported is negligible. The model estimated

that there would be one fewer cruiser/yacht produced annually and that there would be no change in imports and

exports.

Producer surplus is expected to decrease by $0.4 million while consumer surplus will decrease by $0.2 million. 

Thus, the total social cost of the regulation on this market segment is $0.6 million. The average affected facility

has a loss of producer surplus of -$19,800 but the facility level losses range from -$166,300 to +$2,600. The nonaffected facilities as a sector are expected to gain $149,500 from the proposed rule.

4.3.4 Jet Boats/PWC Market

Only 16 facilities that produce jet boats and/or PWCs were identified as major sources of HAPs. However, these

16 facilities account for 71% of all domestically produced boats in this market segment. As stated in Chapter 2,
Chapter 4 Economic Impacts 4-11

imports of PWCs are significant. Thirty-two percent of all PWCs and jet boats sold in the U.S. are manufactured

abroad. 

A total of $506,000 will be spent on compliance costs by facilities in this sector. This total is negligible compared

to the $1.5 billion dollars in annual sales in this sector. The compliance costs do not increase the price of boats by

more than $1, in large part because such a small sector of the market will incur compliance costs.

A total of 28 fewer units will be sold (less than 0.1% reduction). The social cost of the regulation on this market is

$0.3 million, of which $0.2 is a decrease in producer surplus and $0.1 is a decrease in consumer surplus.

The average affected jet boat/PWC facility has a loss of producer surplus of -$14,700, but the facility level losses

range from -$78,600 to -$1,200. In addition, the non-affected domestic facilities as a sector are expected to gain

$174,100 as a result of market adjustments to the proposed rule.

4.3.5 Sailboat Market

There are ten facilities that produce sailboats and are major sources of HAPs. These ten facilities will spend an

estimated $0.7 million in compliance costs. As with most of the other market segments, these costs represent a very

small fraction of the $448 million dollars in estimated annual sales in this sector. 

The compliance costs are expected to increase the price of a sailboat by $11. This is an increase of less than one

percent over the baseline price of $22,379. The price increase is accompanied by a decrease in domestic sales of

sailboats by 15 boats. Imports of sailboats are expected to rise by roughly three boats, and exports to decline by

six boats. In net, 24 fewer sailboats will be produced domestically. This is a decrease of 0.2% from the baseline

level of domestic production.

Producer surplus is expected to decrease by $0.6 million, consumer surplus will decrease by $0.1 million, and the

total social cost is $0.7 million. The average affected sailboat facility has a loss of producer surplus of -$62,000

but the facility level losses range from -$188,900 to -$22,800. In addition, the non-affected facilities as a sector are

expected to gain $32,600 from the proposed rule.

4.3.6 Canoe Market

There are five U.S. facilities that produce canoes and are major sources of HAPs. These five facilities produce

only an estimated eight percent of domestic production. While the five facilities will incur $94,000 in compliance

costs, these costs have a negligible effect on the overall market. The price of canoes is predicted to increase by less

than one dollar. Producer surplus is expected to decrease by $0.1 million while consumer surplus will decrease by

less than $0.1 million. Thus, the total social cost of the regulation on this market segment is approximately $0.1

million. 

The average affected sailboat facility has a loss of producer surplus of -$18,600, and the facility level losses range

from -$46,800 to -$2,200. Non-affected facilities as a sector are expected to gain $23,400 from the proposed rule. 

4.3.7 Summary of Economic Impacts

The previous sections describe the impacts of the proposed rule on each of the six boat market segments. These

predicted effects are summarized in Table 4-2 below. The table provides estimates of baseline and post-compliance

price and quantity as well as estimates of the changes in producer and consumer surplus.

 
Chapter 4 Economic Impacts 4-12

The overall impact of the regulation on each of the boat markets separately are modest. The total cost of the

regulation is less than one percent of total revenue in each of the six market segments. Three of the markets,

namely inboard cruisers/yachts, jet boats/PWCs and canoes, have nearly negligible market-level impacts. This does

not mean that some individual firms within these markets might not be significantly impacted by the regulation, but

these effects are offset by gains at other facilities, so that the domestic producers as a group are not significantly

impacted.

The total social cost of the regulation can be estimated by summing the change in market surplus for all six boat

market segments. The total annual social cost is $13.0 million, of which $8.9 million is lost producer surplus and

$4.1 million is lost consumer surplus. Total revenue for all market segments is $6.8 billion. Thus, the total social

cost of the rule equals 0.2% of total baseline revenue. 
Chapter 4 Economic Impact Analysis 4-13

Table 4-2: Summary of Market-Level Economic Impacts of the Proposed MACT Standards

Outboard Inboard

Runabout/

Sterndrive

Inboard

Cruiser/Yacht

Jet Boats/

PWCs

Sailboats Canoes Total–All

Markets

Baseline Market Conditions

Baseline Domestic Demand (# of boats) 200,000 98,100 6,300 187,700 14,300 103,600 610,000

Baseline Domestic Production (# of boats) 206,787 107,704 6,469 139,625 13,240 98,814 572,639

Baseline Imports (# of boats) 1,561 3,203 340 67,150 20,041 22,839 115,134

Baseline Exports (# of boats) 8,348 12,807 509 19,075 5,714 18,053 64,533

Baseline Price $7,107 $22,476 $264,937 $7,036 $15,000 $590 NA

Post-Compliance Market Adjustment

Change in Domestic Demand (# of boats) (589) (108) (1) (28) (15) (87) (828)

 Percentage Change in Domestic Demand -0.3% -0.1% 0.0% 0.0% -0.1% -0.1% -0.1%

Change in Domestic Production (# of boats) (616) (125) (1) (27) (24) (113) (906)

 Percentage Change in Domestic

Production

-0.3% -0.1% 0.0% 0.0% -0.2% -0.1% -0.2%

Change in Imports (# of boats) 2 3 0 7 3 11 26

 Percentage Change in Imports 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%

Change in Exports (# of boats) (25) (17) 0 (4) (6) (15) (64)

 Percentage Change in Exports -0.3% -0.1% 0.0% 0.0% -0.1% -0.1% -0.1%

Change in Price $10 $17 $35 $1 $11 $0 NA

 Percentage Change in Price 0.1% 0.1% 0.0% 0.0% 0.1% 0.1% NA

Post-Compliance Welfare Measures

Change in Producer Surplus (Millions $) ($4.6) ($3.0) ($0.4) ($0.2) ($0.6) ($0.1) ($8.9)

Change in Consumer Surplus (Millions $) ($2.0) ($1.7) ($0.2) ($0.1) ($0.1) $0.0 ($4.1)

Total Social Cost(Millions $) ($6.6) ($4.7) ($0.6) ($0.3) ($0.7) ($0.1) ($13.0)
Chapter 4 Economic Impact Analysis 4-14

4.4 Facility Closures and Employment Effects

The social costs of the regulation measure the amount the proposed regulation costs society as a whole. In addition

to assessing the total social burden, EPA is interested in how the costs are distributed. This section investigates

distributional issues by examining facility closures and changes in employment that are expected as a result of the

regulation.

4.4.1 Facility Closures

While the social costs of the proposed regulation are relatively modest, this does not mean that individual facilities

will not experience more substantial impacts. One of the primary limitations of the methodology used to estimate

social costs is that it assumes that each facility has the same elasticity of supply in the neighborhood of the baseline

equilibrium. This implies that, given small price changes, each facility will reduce production at the same rate. 

This does not mean that each facility reduces production by the same amount, because a facility’s change in

production depends not only on its elasticity of supply but also on its baseline level of production and its

compliance costs (as shown in equation (1)), both of which may vary from one facility to another. However, it does

imply that all firms will reduce production in a smooth and uniform fashion. As a result, the small price changes

predicted by the model do not result in any predicted facility closures. All facilities that incur compliance costs

simply reduce production by some amount. Facilities with higher compliance costs reduce production more, but

never to zero.

In reality, different facilities have different baseline cost structures and will respond to increased compliance costs

and price changes differently. In the absence of information on facility production costs, we had to make

assumptions about producers’ supply responses. We examine the impact of altering these assumptions in the

sensitivity analysis presented in Appendix B.

In lieu of determining facility-level closures based on information on facility-level profits and compliance costs, we

use the market level information on total predicted change in quantity to infer the number of facilities that would

shut down if the quantity decrease was born entirely by one (or more) facility. For example, if the market analysis

predicts that 1,000 fewer boats are produced and the average facility produces 500 boats, then the impact is

equivalent to two facility closures.

Table 4-3 presents the total predicted reduction in domestic production, average output per facility, and predicted

boat facility closures for each of the six boat market segments. Note that the predicted reduction in quantity is not

equivalent to even one facility closure in all six markets. While this does not mean that no facilities will close after

implementation of the rule, it does indicate that the rule itself has modest total impacts and that any facility closures

will likely reflect poor relative baseline profitability rather than resulting solely from the compliance burden.
Chapter 4 Economic Impact Analysis 4-15

Table 4-3: Estimated Equivalent Facility Closures by Market Segment

Predicted Reduction in

Output

Average Number of Units

Produced Per Facility

Equivalent Number of

Facility Closures

Outboard 616 2,471 0.25

Inboard

Runabout/Sterndrive

125 678 0.18

Inboard Cruiser/Yacht 1 82 0.01

Jet Boat/PWC 27 6,154 0.00

Sailboat 24 1,030 0.02

Canoe 113 1,590 0.07

4.4.2 Employment Effects

We estimated the employment effects of the MACT standard by using information on the ratio of facility

production to facility employment. For each of the affected facilities, we calculated the ratio of facility-level

employment to facility-level output. The average baseline production/employment ratio was multiplied by the

predicted change in production from the market-level analysis to estimate the total change in employment for each

market segment. The total change in employment is then calculated as the sum of the predicted changes in all six

market segments. These results are presented in Table 4-4 below. The total predicted change in employment is 48

employees. Total employment in this industry is 51,500 (U.S. Department of Commerce, 1992). Thus the

regulation-induced reduction in employment is less than one tenth of one percent from the baseline. Note that this

approach assumes that employment is directly proportional to production. Thus, as production falls we predict

employment will fall. This is not necessarily the case, particularly for small output changes. The employment

changes presented in Table 4-4 should be considered upper bound estimates.

Table 4-4: Estimated Change in Employment by Boat Market Segment

Predicted Reduction in

Output

Production to

Employment Ratio

Equivalent Reduction in

Employment

Outboard 616 26 24

Inboard

Runabout/Sterndrive

125 7 17

Inboard Cruiser/Yacht 1 1 1

Jet Boat/PWC 27 26 1

Sailboat 24 5 5

Canoe 113 400 0

Total 906 NA 48
Chapter 5 Firm-Level Analysis 5-1

5. Firm-Level Analysis

5.1 Introduction

The Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement Fairness Act (SBREFA)

require EPA to prepare a regulatory flexibility analysis for any notice-and-comment rule it issues, unless the agency

certifies that the rule “will not, if promulgated, have a significant economic impact on a substantial number of small

entities.” A regulatory flexibility analysis includes:

ò the number of small entities potentially affected, 

ò information on the compliance costs of the proposed rule,

ò identification of any federal rules that may duplicate, overlap or conflict with the proposed rule, and 

ò an analysis of any significant regulatory alternatives which accomplish the same objectives and which

minimize any significant economic impact of the proposed rule on small entities.

In addition, SBREFA requires the agency to perform a variety of other tasks to ensure that small entity issues are

being addressed if small business impacts are thought to be of sufficient concern. These additional requirements

include: performing small entity outreach, convening small business advocacy review panels, issuing compliance

guides for small entities, and allowing for Congressional review of the regulation. EPA has prepared guidelines for

implementing the SBREFA and RFA requirements and this chapter was developed in accordance with those

guidelines (EPA, 1997). 

The NESHAP for the Boat Manufacturing Source Category is a notice-and-comment rulemaking subject to

SBREFA and RFA. This chapter evaluates impacts on affected firms in the industry, where an affected firm is the

ultimate legal entity owning an affected facility. 

Evaluating impacts on boat manufacturing firms requires three types of information:

ò The number of small and large firms. 

ò The regulatory costs incurred by small and large firms (calculated as the sum of costs for all facilities

owned by a firm).

ò A criteria for determining the significance of impacts.

The number of small firms is discussed in Section 2.2 of the Industry Profile -- Chapter 2. For convenience, these

data are summarized in Section 5.2. Section 5.3 discusses criteria for identifying significant impacts. The impact

of the proposed rule on small and large firms is analyzed in Section 5.4 based on compliance cost-to-revenue ratios. 

Section 5.5 presents the conclusions of the analysis and discusses whether the rule presents a “significant economic

impact on a substantial number of small entities.”

5.2 Number of Small Firms

The Small Business Administration (SBA) provides small business thresholds by 4-digit SIC code. Boat

Manufacturing is included in SIC 3732–Boat Manufacturing and Repair. The SBA defines “small” for this SIC as

firms with less than 500 employees. EPA found no compelling reason to use an alternative definition of a “small”

firm based on financial profiles or production profiles of boat manufacturing facilities and firms. This analysis

therefore examines the impacts of the proposed rule on firms with fewer than 500 employees and compares these to
10U.S. Environmental Protection Agency, EPA Interim Guidance for Implementing the Small

Business Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act.,

February 5, 1997.

Chapter 5 Firm-Level Analysis 5-2

the impacts on firms with more than 500 employees.

As described in Section 2.2, the Statistics of U.S. Businesses (SUSB) was used to determine the total number of

firms engaged in boat manufacture and repair. However, not every firm will be affected by the proposed regulation. 

Firms will be required to comply with the proposed rule if they are major sources of hazardous air pollutants

(HAPs). The number of potentially affected firms was determined using data on facility-level styrene emissions

from the Toxic Release Inventory (TRI). Firms owning at least one facility that is a major source of styrene based

on the 1997 TRI data are assumed to be affected by the regulation. There are a total of 78 boat manufacturing

firms that own at least one facility classified as a major source of styrene.

Data from Dun and Bradstreet were used to determine firm-level employment for all affected firms. Of the 78

affected firms, 66 are classified as small firms. Table 5-1 below shows the distribution of boat manufacturing

firms by employment size for both affected and unaffected firms. Note that while there are a large number of small

boat manufacturing firms, only 2.9% of these firms will be affected by the regulation. Alternatively, there are only

21 large boat manufacturing firms, but most (71.4%) of these firms own facilities that are major sources of styrene

and that will be affected by the proposed rule.

Table 5-1: Estimated Number of Boat Manufacturing Firms by Employment Size

Total Number of

Firms

Number of

Affected Firms

Affected Firms

as a Percent of

Total Firms 

Small Firms–SIC 3732 2,590 66 2.5%

Less Small Firms Specializing in Boat Repair 283 0 0.0%

Total Small Boat Manufacturing Firms (est.) 2,307 66 2.9%

Large Firms–SIC 3732 21 15 71.4%

Total Boat Manufacturing Firms (est.) 2,328 78 3.4%

5.3 Criteria for Assessing Impacts

Several different measures of “impact” could be used to determine whether there is a “significant economic impact

on a substantial number of small entities”. EPA’s SBREFA guidance suggests three different measures for

determining the economic impact of a regulation on small firms10. These three measures are:

ò Annualized compliance costs as a percentage of sales (“Sales Test”),

ò Debt-financed capital compliance costs relative to current cash flow (“Cash Flow Test”), and

ò Annualized compliance costs as a percentage of before-tax profits (“Profit Test”).

Current EPA guidelines recommend using the sales test for analyzing impacts on small firms (EPA, 1997). The

sales test is also the most appropriate test to use given the nature of compliance costs and the data available for the
11While profits is the most appropriate basis for assessing impacts in theory, this approach requires

detailed information on firm-level profits. Profit information is typically only available for publically

owned firms. However, most of the small firms affected by this rule are privately owned and do not

provide this information. We therefore rely on the sales test and note that firms with similar compliance

cost-to-sales ratios may experience different levels of impact depending on their baseline costs and

profitability. The cash flow test is most appropriate when capital costs are a substantial portion of the total

compliance costs. As described in Chapter 2, the compliance costs for boat manufacturing are largely

materials costs. Thus, the cash flow test is less relevant in this case.

12D&B Industry Norms and Key Business Ratios 1998-1999. Other sources of financial ratio data

include Leo Troy’s Almanac of Business and Industrial Financial Ratios and RMA’s Annual Statement

Studies. In both of these sources, data were available for the combined ship and boat building and repair

industries. While the proposed rule will apply to a very small segment of the shipbuilding industry, the

focus of this analysis is on boat manufacturing facilities. In both publications, reported profit ratios for the

combined industries were slightly lower than those reported in Dun and Bradstreet for boat manufacturers.

13There is no simple relationship between before-tax costs as a percent of revenues and impacts on

profitability. Compliance costs are a tax-deductible expense. Therefore, costs equal to three percent of

profits would not result in zero profits for a firm that was earning a three percent profit on sales in the

baseline. The precise impact on after-tax profit rates would depend on the firm’s marginal tax rate. For

example, with a 29% marginal tax rate, before tax compliance costs equal to three percent of sales would

reduce after-tax profits from three percent to just below one percent of sales. In addition, to the extent that

some of the compliance costs are recovered in price increases, the impact on after-tax profits would be less

severe. 

Chapter 5 Firm-Level Analysis 5-3

boat manufacturing industry11.

For the sales test, the EPA guidelines suggest using one percent and three percent as thresholds for evaluating

impacts (EPA, 1997). We examined industry profit margins to determine the reasonableness of the thresholds

suggested by the EPA guidelines. Dun and Bradstreet (D&B) “Industry Norms and Business Ratios” were used to

determine the financial characteristics of boat manufacturers12. D&B provides data on percentage return on sales,

calculated as net profit after taxes divided by total annual sales. This is an estimate of typical profit margins in the

industry. These ratios are generated using data from 103 boat manufacturing firms. The median return on sales

for the boat building and repair industry (SIC 3732) in 1997 was 3.1%. The upper quartile of the distribution have

profit margins in excess of 6.6% while the lowest quartile have profit margins below 0.9%. We classify firms as

experiencing a significant impact if before-tax compliance costs as a percentage of sales equals the baseline aftertax profits as a percentage of sales13. Therefore, it appears that three percent is an appropriate upper threshold for

measuring economic impacts for this industry, and that one percent can be considered a moderate impact on firms

in this industry. 

Based on its guidelines, EPA can certify that the proposed rule does not have a “significant economic impact on a

substantial number of small entities” if compliance cost-to-sales ratios are less than one percent for all entities. EPA

can also certify the rule if fewer than 100 entities are affected regardless of the level of impact. If more than 100

entities are affected and some entities experience compliance costs in excess of one percent of sales, EPA may still

certify the rule by presenting supporting evidence to the Small Business Advisory Committee. If the rule is not

certified as not having a “significant economic impact on a substantial number of small entities,” EPA must

prepare a regulatory flexibility analysis that considers all other significant regulatory alternatives which accomplish

the same objectives and which minimize any significant economic impact of the proposed rule on small entities. 

As a caveat, we note that while the boat manufacturing NESHAP may not present a “significant economic impact

on a substantial number of small entities” this conclusion is made using industry level financial thresholds. On
Chapter 5 Firm-Level Analysis 5-4

average, firms in this industry earn three percent profits, but the lower quartile of firms earn profits of less than one

percent. To the extent that some of the small firms that are major sources of HAPs are in this lower quartile, costto-sales ratios of one percent or less may be significant for individual firms. Without more detailed firm-level

profitability in the baseline, it is not possible to reach more precise conclusions about the impacts of the proposed

rule on small firms.

5.4 Impact of the Proposed Rule on Small Firms

Compliance costs (as are reported in Chapter 3) were estimated at the facility level and then summed for all

facilities owned by the same firm to obtain firm-level compliance costs. Firm-level sales were taken from Dun and

Bradstreet and other publically available data sources, including companies’ web pages and SEC filings. These

data were combined to calculate cost-to-sales ratios for each firm.

Table 5-2 presents the number of firms (both small and large) that have compliance cost-to-sales ratios above the

one percent or three percent threshold. Nineteen small firms (30%) were found to incur compliance costs in excess

of one percent of sales. Of these 19 firms, only one firm has costs in excess of three percent of sales. The

following sections first discuss the 18 firms with compliance costs between one and three percent of sales, and then

discuss the one firm with costs exceeding three percent of sales in more detail.

5.4.1 Small Firms With Compliance Costs Between One and Three Percent of Sales

The majority of the 18 firms with ratios between one and three percent have impacts very near or equal to one

percent. Specifically, three firms have compliance costs equal to one percent of their sales. An additional 10 firms

incur costs between 1.1% and 1.5% of sales. Only three firms have compliance costs over two percent of sales.

The 18 small firms with compliance costs between one and three percent of sales share the following features:

ò Firms manufacture a single type of boat. All but three firms make only a single type of boat. The

majority of firms with compliance costs in excess of one percent of sales (11 in total) manufacture

outboard boats. Facilities owned by these firms incur average compliance costs of $81,000 per year –

slightly lower than the $91,000 per facility average cost for the market segment as a whole. However, the

11 firms own facilities that are smaller than the average for the entire market segment, with average

baseline revenues of $4.4 million compared to the average of $17.6 million for all outboard manufacturing

facilities. They therefore receive less total increase in revenue from the predicted $10 per boat price

increase than the average facility (an average of $6,000 each versus a $26,000 average increase for the

segment as a whole). The predominance of outboard boat manufacturers among the 18 small firms

probably reflects the fact that outboard boat production involves primarily hull manufacture, with relatively

few add- on features. Add-on features such as engines (for inboards and jet boats) or furniture (for yachts)

add value to the boat but are not associated with compliance costs under the proposed rule.

ò Firms own a single facility. Eleven of the 18 firms are single-facility firms. Of the remaining seven firms,

five may be single facility firms but the parent-company employment was not available from Dun and

Bradstreet to confirm this. Only two of the 18 firms are known to be multiple facility firms.

It is also worth noting that while only four of the 78 firms affected by the rule manufacture boat parts or serve as

job shops, three of these four firms have compliance costs in excess of one percent of sales. 

Table 5-2: Compliance Cost to Sales Ratios by Firm Employment Size
14EPA is currently developing MACT standards to control emissions from other manufacturers

using reinforced plastics, including bathtub and spa manufacturers. If this sources is subject to the

reinforced plastics MACT, they may incur additional compliance costs associated with that rule. 

Chapter 5 Firm-Level Analysis 5-5

Total

Firms

Total

Affected

Firms

Number of

Firms With 

Costs in

Excess of

1% of Sales

Percent

of

Affected

Firms

Percent

of Total

Firms

Number of

Firms With 

Costs in

Excess of

3% of Sales

Percent of

Affected

Firms 

Percent

of Total

Firms

Small

Firms

2,307 63 19 30.2% 0.8% 1 1.6% 0.0%

Large

Firms

21 15 0 0.0% 0.0% 0 0.0% < 0.1%

Total 2,328 78 19 24.4% 0.8% 1 1.3% < 0.1%

Note: Numbers shown are not exclusive. Firms with compliance costs in excess of three percent of sales are also listed as

having costs in excess of one percent of sales.

5.4.2 Firms With Compliance Costs Greater Than Three Percent of Sales

The one firm with costs exceeding three percent of sales is a single-facility firm that makes both outboard boats and

other fiberglass products such as bathtubs and spas. Survey data on total resin consumption were available for this

firm. Data from the survey do not indicate what percentage of the firm’s resin usage is associated with the

manufacture of boats. The estimated annualized costs based on total reported resin use are $41,569. This cost

may be overstated if substantial portions of the resin use is not associated with boat manufacturing.

Sales for this firm of $1.1 million were obtained from Dun and Bradstreet. The estimated compliance cost-to-sales

ratio of 3.7% suggests that this firm may experience significant economic impacts if the firm has baseline profits

similar to the industry average for boat manufacturers. A more detailed analysis of the potential impact on this

facility could not be performed because the facility is privately owned and we have no information on firm-level

costs or profits. It is possible that this facility will elect to stop manufacturing boats and switch to exclusively

manufacturing bathtubs and spas as a result of the regulation. This might occur if the bulk of resin use is from

boat manufacturing and if revenue from bathtub/spa manufacture is sufficient to maintain operations14. 

5.5 Conclusions

Nineteen small firms that are major sources of HAP emissions, and hence affected by the regulation, are expected

to have compliance costs in excess of one percent of their total sales. This represents 30.2% of all affected small

firms, but only 0.8 percent of the estimated total number of small boat manufacturers. Only one firm is expected to

experience costs in excess of three percent of sales. There is uncertainty regarding the compliance costs estimates

for this firm, which stems from the fact that the firm manufactures bathtubs and spas as well as boats, and no

information was available on the percent of emissions that can be attributed to bathtub/spa manufacture versus boat

manufacture. 

Table 3-1 in Chapter 3 shows that capital costs represent only four percent of total compliance costs for all affected

firms (before taking production level adjustments into account.) Most compliance costs are materials costs and are

largely variable with production levels. This suggests that, in general, smaller producers will not incur

disproportionate costs due high fixed compliance expenditures. Some particular small producers may be at a
15Only 66 of the 2,307 estimated small boat manufacturing firms are major sources of HAPs.

Chapter 5 Firm-Level Analysis 5-6

disadvantage because they emit more HAPs per boat produced than other producers, or otherwise are farther from

compliance with the proposed requirements in the baseline than other small producers or their larger competitors. 

The analysis in this chapter has focused on negative economic impacts. However, less than three percent of the

estimated 2,307 small firms in the industry15 are affected by the rule and the unaffected small firms stand to gain a

competitive advantage from the regulation. These numerous unaffected small firms will experience an increase in

revenue as prices rise but will not incur any compliance cost themselves. Given the small percentage of small firms

expected to incur compliance costs in excess of one percent of sales and given the large number of small firms that

are not major sources and that could gain a competitive advantage from the regulation, it does not appear as if the

proposed NESHAP presents a “significant economic impact on a substantial number of small entities” at the

industry level.
References R-1

References

Boating Industry. 1996. “The Boating Business, 1995 Annual Industry Review.” January.

Boating Industry. 1998. “The Boating Business, 1997 Annual Industry Review.” January

DeFranco, Liz. 1996. “Sailboat Production Rose Moderately in 1995.” Boating Industry, v59, n4, 1996.

DeFranco, Liz and Richard Porter. 1996. “Marine Retailing: A Look into the Future,” Boating 

Industry, v59, n4, pg43.

Dun and Bradstreet. 1998. Industry Norms and Key Business Ratios.

Encyclopedia of American Industries. 1998. Gale Research Group, Editors, Heil. S and Peck, T.

ITC. 1998. U.S. Domestic Exports and U.S. Imports for Consumption.

Kurowski, Jeff. 1996. “Freedonia Forecasts Industry Sales, PWC Market”, Boating Industry, v59, n7.

Manufacturing USA, Fifth Edition, 1996.

National Marine Manufacturers Association. 1995 Boating Industry 1995. Chicago, IL.

National Marine Manufacturers Association. 1996. Boating Industry 1996. Chicago, IL.

National Marine Manufacturers Association. 1997. Boating Industry 1997. Chicago, IL.

Raboy, Dr. David G. 1987. “Results of an Economic Analysis of Proposed Excise Taxes on Boats”, mimeo,

Washington D.C.: Patton, Boggs and Blow, prepared for the National Marine Manufacturers Association,

Chicago, IL.

SRI International. 1996. Chemical Economics Handbook, Unsaturated Polyester Resins, April, page 580.1201 F.

The Sailing Company of Miller Sports Group LLC. 1998. 1998 Annual Sailing Business Report.

U.S. Department of Commerce. 1993. International Trade Administration. U.S. Industrial Outlook, 1993,

Washington, DC.

U.S. Department of Commerce. 1994. International Trade Administration. U.S. Industrial Outlook, 1994,

Washington, DC.

U.S. Department of Commerce. 1998. International Trade Administration, U.S. Industry and Trade Outlook

1998, Washington, DC.

U.S. Department of Commerce. 1992. Bureau of the Census. 1992 Census of Manufactures, Industry Series,

MC92-I-37C (including “Ship and Boat Building”.)

U.S. Department of Commerce. 1996a. Bureau of the Census. 1996 Annual Survey of Manufacturers. 
References R-2

U.S. Department of Commerce. 1996b. Bureau of the Census. County Business Patterns, 1996.

U.S. Department of Commerce. 1996c. Bureau of the Census. Statistical Abstract of the U.S. 1996.

U.S. Department of Commerce. 1996d. Bureau of the Census. Statistics of U.S. Businesses, U.S. Totals for All

Industries, 1996.

U.S. Environmental Protection Agency. 1999. Final Cost Procedures Documentation Memorandum. June 10,

1999.

U.S. Environmental Protection Agency. 1997a. Profile of the U.S. Shipbuilding and Repair Industry. Office of

Compliance Sector Notebook Project. EPA 310-R-97-008, September.

U.S. Environmental Protection Agency. 1997b. EPA Interim Guidance for Implementing the Small Business

Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act. February

5, 1997.

U.S. Small Business Administration. 1999. Small Business Size Standards Matched to SIC Codes. Downloaded

from SBA website. 
Appendix A Facility-level Sales Estimates A-1

Appendix A: Facility-level Sales Estimates

A.1 Introduction

The economic impact analysis requires as inputs the number of boats produced by type, the price of each boat type,

and sales for each facility. Depending on what information was available for each affected facility, we used

available data to derive missing data at the facility level (e.g., using price and quantity produced to calculate sales

or price and sales to calculate number of boats produced.) In all cases, we classified facilities by type of boat

produced and used data on the average price per boat for different types of boat as the estimate of price. To the

extent that the boats produced by a particular facility are sold at higher or lower prices than the average price

reported for the relevant boat market, facility-level sales will be under- or overstated (or the number of boats

produced will be under- or overstated) by this estimation approach.

Firm-level sales are available for most of the boat manufacturing firms from Dun and Bradstreet (D&B). This

appendix details the assumptions and calculations that were used to estimate sales at the facility level. The process

included classifying facilities by boat type and estimating facility-level sales. Section A.2 describes the data and

estimation procedures used. Section A.3 documents our decision criteria for choosing a sales estimate when more

than one estimate was available for a facility. 

A.2 Methods of estimating facility-level sales

Facility-level sales are available for some facilities in D&B, but even when these numbers are available, they are

not always reliable. For example, firm-level sales are reported for many facilities, or the sum of facility-level sales

within one firm is significantly different from firm sales. As a result, we do not rely on facility-level sales from

D&B. Instead a variety of different data sources were used to estimate facility-level sales. This section first

describes the sources of data used and then explains the three different estimation procedures employed.

A.2.1 Sources of data

The following data sources were employed in the estimation of facility-level sales and classification of facilities by

type of boat produced. None of the data sources contained information on all the boat manufacturing facilities of

interest. Therefore, of the three estimation methods used, only one or two were available for most facilities due to

data limitations.

ò Survey of selected boat manufacturing facilities: The survey provides information on the number of boats

produced, the average size of boats produced and the number of employees at each facility. Survey data

are available for 47 percent of facilities. 

ò Firm web pages: Web pages, when available, can provide information on the type of boats (outboard,

inboard cruiser, jet boat etc.) produced at each facility. Internet information was available for

approximately 110 facilities. 

ò Firm Security and Exchange Commission (SEC) filings: Publicly traded firms are required to file with the

SEC. These filings can include information on the type of boats produced and firm revenue. SEC filings

were available for seven firms.

ò National Marine Manufacturers’ Association. (NMMA) “Boating 1997": Provides information on the

average price of boats by boat type (outboard, inboard runabouts, etc.)

ò Dun and Bradstreet: At the firm level, D&B provides information on sales and employment. Employment

figures are available at both the facility- and firm level. As mentioned above, facility-level sales are

available, but are believed to be unreliable. 
16Price information from the NMMA reflects the average retail price of boats sold. Boat

manufacturers receive the wholesale price, and using the retail price may therefore overstate total sales for

the facility to an unknown extent. 

Appendix A Facility-level Sales Estimates A-2

ò Census of Manufacturers, 1992: The Census of Manufactures provides information on total value of

shipments and total employment by facility employment-size range at the four digit SIC code level. The

data for SIC 3732 “Boat Manufacturing and Repair” were used in this analysis. 

ò Annual Survey of Manufacturers, 1996: The Annual Survey of Manufacturers provides value of

shipments and total employment information on a more frequent basis than the Census of Manufacturers. 

However, the Annual Survey does not provide these figures by different employment ranges. Again, data

for SIC 3732 “Boat Manufacturing and Repair” were used.

A.2.2 Three estimations of facility-level sales

This section describes three different approaches that were used to estimate sales at the facility level. Where more

than one method could be used for a particular facility, the estimates were compared and a single estimate was

selected using decision criteria described in the next section. It should be noted that all of the methods used are

subject to uncertainty, and the estimate selected for any single facility may be either over- or understated. The use

of multiple methods wherever possible should prevent significant errors in the estimates, however.

(a) Using the number, type and price of boats sold 

The survey provided data on the number of boats produced for 47 percent of the affected facilities. Web sites and

SEC filings were used to determine the type of boat manufactured at each facility. If the facility produced only one

type of boat, then the estimate of facility sales was simply the number of boats multiplied by the average price for

that boat type16.

The calculations were more complex if information from the survey, web-pages, or SEC filings indicated that the

facility or firm made more than one type of boat. Unfortunately we do not have information on the number of boats

of different types produced at each facility. Instead we have the total number of boats produced and qualitative

information on the types of boats produced. In order to complete the calculation we needed to determine the

average price of all boats produced at the facility. A simple average of the prices of all boats manufactured was

believed to be misleading because it assumes that facilities produce the same number of different types of boats. 

Instead of using a simple average, we used industry level sales data to calculate a weighted average price. The

price of each type of boat produced at the facility is weighted by the ratio of the number of boats of that type

produced industry-wide to the total number of boats produced of all types. Instead of assuming that each facility

divides production evenly between the boat types it produces, this method assumes that each facility produces

different boats in the same ratio as the industry as a whole. The weighted average price was then multiplied by the

total number of boats produced to obtain an estimate of facility sales. 

The average price of boats was taken from the 1997 NMMA report and no updating of these dollar values was

necessary.

(b) Using firm level sales and the ratio of facility-to-firm employment from D&B

As previously mentioned, D&B provides data on sales and employment at the firm level and data on employment at

the facility level. The second estimation method assumes that, within each firm, facility sales are proportional to

facility employment. Using this assumption, facility-level sales can be calculated as firm-level sales multiplied by

the ratio of facility employment to firm employment. This method is most accurate when the firm is relatively
Appendix A Facility-level Sales Estimates A-3

homogenous. If the firm manufactures a wide variety of products, then the assumption that sales are proportional

to employement is more suspect.

The D&B data are updated at least once every two years for each firm. As a result, the dollar values are assumed

to be current and no updating of these numbers was performed.

(c) Using value of shipments and the ratio of facility employment to total employment by range from the

Census of Manufacturers (employment data from D&B)

The third estimate of facility-level sales relies on information from the Census of Manufacturers. The Census of

Manufacturers is conducted every five years and establishment (facility) data are reported at the four-digit SIC

code level. Data for SIC 3732 “Boat Manufacturing and Repair” were used for this analysis. Data on the value of

shipments and total employment are reported by establishment employment range. For example, data are available

for facilities with employment ranging from 100-500 employees. 

The most recent Census of Manufacturers was conducted in 1992, making the value of shipments data incompatible

with the more recent D&B data. The Annual Survey of Manufacturers was last conducted in 1996 and provides

value of shipment and employment data for the boat manufacturing SIC code, but not by establishment employment

range. We updated the 1992 values by multiplying total value of shipments from the 1996 Annual Survey of

Manufacturers by the ratio of employment range value of shipments to total value of shipments from the 1992

Census. This calculation implicitly assumes that the percentage of the total value of shipments and total

employment attributed to each employment range did not change between 1992 and 1996. 

Facility-level sales are extrapolated from the updated value of shipments and employment numbers by employment

range. Each facility was first assigned to an employment range based on the facility employment data from D&B. 

For example, a facility with 150 employees is assigned to the employment range “100-500 employees.” The total

value of shipments for that employment range is then multiplied by the ratio of facility employment to the total

number of employees for all establishment in the employment range, to estimate facility sales.

As with the D&B estimate described above, this method makes an assumption about the proportionality of sales to

employment. In this estimation, we assume that sales are proportional to employment within an employment size

range. This may not be true if facilities in the same employment class produce different types of boats or conduct

different activities (e.g., boat repair versus boat manufacturing).

3. Selecting facility level sales

Not every facility had enough data to calculate facility sales using all three methods. Where only one method was

feasible, that estimate of sales was used. However, data were available to estimate sales using at least two of the

methods for many facilities. Specific decision rules were used to choose systematically among sales estimates for

facilities with multiple estimates. In developing these decision criteria we were concerned with being as consistent

as possible across facilities. The decision rules are given below.

ò Where facility employment equals firm employment in D&B: In this case, we assumed that the firm owns

only the one facility. For these facilities, we used the D&B firm-level sales as the facility-level sales value

as well.

ò Where facility employment does not equal firm employment and both D&B and Census estimates are

available: We always chose the D&B estimate if there was one available, recognizing the diversity of SIC

codes and the fact that the D&B data are at least reported at the firm level rather than the SIC/employee

size category level.

ò Where D&B employment data are available but not sales data: The average per-facility value of shipments
Appendix A Facility-level Sales Estimates A-4

was taken from the Census for the relevant facility employment-size category.

ò Where no facility employment estimate is available: An estimate based on the number of boats produced

reported in the survey and the average price of the relevant boat type was used. 

D&B data were not used for five of the affected companies. Three out of the five had no D&B information on sales

and employment. For two of these companies, sales estimates were obtained from different sources including a

phone call to the facility and Manufacturing USA (Fifth Edition, 1996). For the third company no sales estimate

could be obtained and we assumed sales at this company were equal to the average sales for all affected small

businesses. D&B data were not used for the other two companies because a more accurate ultimate sales estimate

could be obtained elsewhere. These two companies are large and have many divisions that do not specialize in boat

manufacturing. For these companies, a 10-K filing from the SEC and/or website information was used to obtain

sales and employment data for their marine segment only. 

As a check on the reasonableness of our sales estimates, we used the survey data to calculate an “implied” average

price of boats produced at each facility by dividing the facility sales estimate by the number of boats produced. 

These implied prices are generally higher than the average retail price of boats reported by the NMMA. There are

several potential explanations for this discrepancy, including:

ò Major sources may produce higher-end boats than the average facility in the same employment size

category;

ò The assumption of a consistent relationship between employment and number of boats produced may be

inaccurate; and

ò The assumed mix of boats at each facility may be inaccurate.

As a second check on the reasonableness of the facility sales estimates, we summed sales for all facilities in the

same firm and compared these values to firm-level sales in D&B. The sum of estimated facility sales exceeded

firm-level sales for only one facility. In addition, we compared the total sales at all facilities to total sales for the

boat manufacturing industry. The total sales for all facilities in the analysis is approximately half of the total sales

for the boat manufacturing industry as a whole.
Appendix B Sensitivity Analysis B-1

Appendix B: Sensitivity Analysis

B.1 Overview

One of the key assumptions made in the Economic Impact Analysis (EIA) results presented in Chapter 4 is that the

market elasticity of supply (both foreign and domestic) is equal to one for all six boat markets. In addition the

facility-level elasticity of supply is assumed to be the same for all firms and equal to the market elasticity of supply. 

We tested the sensitivity of the model results to changes in the assumed market-level supply elasticity. In order to

test the sensitivity of market-level results to changes in the elasticity of supply, we held all other inputs to the model

constant. We examined how two key indicators for each market–the change in price and the total social costs–vary

over the range of elasticity of supply values between zero and two. This appendix describes the results of those

tests for each of the six boat market segments.

In all six boat markets the change in equilibrium price varies positively with the elasticity of supply. For a given

demand function and a given average compliance cost, the upward shift of a supply function induced by these

compliance costs will result in a greater increase in the equilibrium price the greater the price elasticity of supply. 

In four of the six boat markets the total social cost decreases as the price elasticity of supply increases. In two

markets, jet boats/PWCs and sailboats, the total social cost increases as the price elasticity of supply increases. 

Although the greater increase in price creates greater losses in consumer surplus, most of these losses in consumer

surplus are simply transfers to boat producers. Consumers pay a higher price, but producers receive a higher price. 

Thus these losses in consumer surplus are largely offset by equal gains in producer surplus. In the jet boats/PWCs

and sailboats markets, however, import competition is substantial. When the price elasticity of supply rises and the

increase in equilibrium price rises, a larger share of these gains goes to foreign producers while the compliance

costs are borne solely by domestic producers. Because gains to foreign producers are not included in the

calculation of social costs, the total social cost rises with the elasticity of supply in these two markets. 

In the analysis presented in Chapter 4 we assumed an elasticity of supply equal to one in all markets, which resulted

in an estimate of total social cost for the proposed regulation of $13.0 million. If we assume that the elasticity of

supply takes the value between zero and two that maximizes the total social cost in each market, the total social

costs of the proposed rule is $13.3 million. This cost is 0.2 percent of the $6.8 billion in total revenue for all

market segments, and is only 2.3 percent higher than the total social cost estimated in the base case.
Appendix B Sensitivity Analysis B-2

Sensitivity Of Outboard Model to Changes in Elasticity of Supply Values

0

2

4

6

8

10

12

14

16

18

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Elasticity of Supply

Change in Price

6,450

6,500

6,550

6,600

6,650

6,700

6,750

6,800

Social Cost (1,000s $)

Price

Social Cost

Sensitivity of Inboard Runabout/Sterndrive Model to Elasticity of Supply

0

5

10

15

20

25

30

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Elasticity of Supply

Change in Price

4,450

4,500

4,550

4,600

4,650

4,700

4,750

4,800

4,850

Social Cost (1,000s $)

Price

Social Cost

B2. Outboard Market

With a facility-level elasticity of

supply equal to one for all domestic

facilities and foreign suppliers, the

predicted change in price for

outboards was $10. The total

estimated social costs of the

regulation in this market was $6.64

million. The change in price

increases as the elasticity of supply

increases. Over the range of

elasticities between zero and two, the

expected change in price ranges from

$3 to $16. The social costs decreases

as the supply elasticity increases. The

total social costs ranges from $6.74 to

$6.55 million. 

B3. Inboard

Runabout/Sterndrive Market

With a facility-level elasticity of supply equal to one for all domestic facilities and foreign suppliers, the predicted

change in price for inboard runabouts/sterndrives was $17. The total estimated social costs of the regulation in this

market was $4.65 million. Over the

range of elasticities between zero and

two, the expected change in price ranges

from $5 to $24. Over the same range in

elasticities, the total social costs ranges

from $4.79 to $4.56 million. 
Appendix B Sensitivity Analysis B-3

Sensitivity of Inboard Cruiser/Yacht Model to Elasticity of Supply

0

10

20

30

40

50

60

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Elasticity of Supply

Change in Price

595

600

605

610

615

620

Social Cost (1,000s $)

Price

Social Cost

Sensitivity of Jet Boat/PWC Market to Elasticity of Supply

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Elasticity of Supply

Change in Price

300

305

310

315

320

325

330

335

340

345

350

355

Social Costs (1,000s $)

Price

Social Cost

B4. Inboard Cruiser/Yachts Model

With a facility-level elasticity of supply

equal to one the predicted change in price

for inboard cruisers/yachts was $35 and

the total estimated social costs is

$608,000. Over the range of elasticities

between zero and two, the expected

change in price ranges from $11 to $50. 

The total social costs ranges from

$616,000 to $602,000.

B5. Jet Boats/PWC Model

In the baseline scenario, with elasticity

of supply equal to one for all domestic

facilities and foreign suppliers, the

predicted change in price for jet

boats/PWCs was $0.70. The total

estimated social costs of the regulation in

this market was $338,000. Over the

range of elasticities between zero and

two, the expected change in price ranges

from $0.23 to $0.94. The social costs

also increases as the supply elasticity

increases, ranging from $317,000 to

$348,000.
Appendix B Sensitivity Analysis B-4

Sensitivity of Sailboat Model to Elasticity of Supply

0

2

4

6

8

10

12

14

16

18

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Elasticity of Supply

Change in Price

730

735

740

745

750

755

Social Costs (1,000s $)

Price

Social Cost

Sensitivity of Canoe Model to Elasticity of Supply

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Elasticity of Supply

Change in Price

95

95

96

96

97

97

Social Costs (1,000s $)

Price

Social Cost

B6. Sailboat Model

The baseline predicted change in price for

sailboats was $11and the total estimated

social costs of the regulation in this market

was $745,000. Over the range of

elasticities between zero and two, the

expected change in price ranges from $3 to

$17. The total social costs ranges from

$738,000 to $750,000.

B.7 Canoe Model

The predicted change in price for

canoes was $0.26 and the total

estimated social costs was $96,000. 

Over the range of elasticities between

zero and two, the expected change in

price ranges from $0.07 to $0.39. 

The total social costs ranges from

$97,000 to $95,000, over the same

elasticity range.
Appendix C: Social Cost Equations C-1

Q

P

Q1 Q0

D

S baseline

S postcompliance

P0

 P1

a

 b

c

d

e

f

g

Appendix C: Social Cost Equations

The change in social costs is estimated as the sum of the changes in producer and consumer

surplus for domestic consumers and domestic producers only. The equations for estimating

the change in producer and consumer surplus given linear demand curves (equations (7) and

(8) in Chapter 4) are as follows: 

ŒPS =3i{ [(Qi1*(ŒP-ci)) - 0.5*ŒQi*(ŒP-ci)] - Fi } (7)

ŒCS = -(Q1*ŒP + 0.5*ŒQ

D

*ŒP), (8)

where

SC = social cost resulting from changes in the market,

ŒPS = change in producer surplus,

ŒCS = change in consumer surplus,

Qi1 = post-compliance quantity supplied by domestic facility i,

ŒQi

S = change in quantity supplied by domestic facility i,

Q0 = baseline quantity demanded of (domestic),

ŒQ

D = change in quantity demanded of (domestic),

ŒP = change in market price,

ci = variable cost of compliance for domestic facility i,

Fi = fixed cost of compliance for domestic facility i.

This appendix provides the derivation of these equations. For simplicity we focus on calculating the change in

surplus for a single product and therefore drop the j subscripts that are associated with the six boat types.

Figure C-1 provides a graphical representation of the changes in surplus and is used for reference in the sections

that follow.

Figure C-1
Appendix C: Social Cost Equations C-2

C.1 Change in Producer Surplus

Producer surplus measures the difference between what it costs suppliers to produce the boats they sell and the

revenue they receive from selling these boats – their economic profit. The pre-compliance producer surplus is

represented by the area abP0 in Figure C-1, while the post-compliance producer surplus is represented by the area

fcP1.

The change in producer surplus consists of three distinct parts:

ò Incremental increase in revenue on units produced post–compliance. Graphically this is the area

P1P0ec in Figure C-1. Mathematically this area can be estimated using the following equation:

3 Qi1 * (P1 - P0) or

 3 Qi1 * ÄP

ò Compliance costs paid on units produced post-compliance. This value is represented as the area adcf in

Figure C-1 plus the fixed costs of compliance which are not shown in the graph. Mathematically this area

can be estimated using the equation:

- 3 (Qi1 * ci) - Fi

ò Lost profit on units no longer produced. Graphically the area dbe in Figure C-1 represents the profit

producers lose because the units Q0 minus Q1 are no longer produced. Note that the line segment dc equals

the average compliance costs (ci) while the line segment ce represents the change in price (ÄP). Thus, the

height of the triangle we are interested in is given by the line segment de which can be calculated as ÄP - ci. 

Mathematically the lost profit can be estimated as:

3 0.5 * ÄQ * (ÄP - ci)

Adding all of these components together results in equation (7):

ŒPS =3i{ [(Qi1*(ŒP-ci)) - 0.5*ŒQi*(ŒP-ci)] - Fi }

C.2 Change in Consumer Surplus

Consumer surplus measures the difference between what consumers are willing to pay and what they actually pay

for a product. The pre-compliance consumer surplus is represented by the area gbP0, while the post-compliance

consumer surplus is represented by the area gcP1. The change in consumer surplus is therefore represented by the

area P1P0bc. This change has two components.

ò Transfer of surplus from consumers to producers. The area P1P0ec is lost consumer surplus but is also

a gain in producer surplus (See Section C.1 above). This area can be estimated mathematically using the

following equation:

- 3 Qi1 * (P1 - P0) or

- 3 Qi1 * ÄP

ò Lost surplus on units no longer consumed. The triangle ceb represents lost consumer surplus on units

that were consumed pre-compliance but are no longer consumed post-compliance. Mathematically the area

of this triangle can be estimated as:
Appendix C: Social Cost Equations C-3

-0.5 * ÄP * ÄQ

Adding the two components of the change in consumer surplus yields equation (8):

ŒCS = -(Q1*ŒP + 0.5*ŒQD*ŒP).