When new capital is difficult to start because of regulation, then fewer people would be interested in investing the extra time and money to create new capital. The other thought is that increased cost would stimulate businesses to sponsor research and development to combat against higher costs. Environment regulation can spur productivity growth by forcing firms to adopt new and cheaper production techniques. In this case, regulation has played a technology-forcing role, encouraging firms to develop more productive manufacturing methods by setting standards they must achieve. Innovations, however, are not put into place over night.
Much technology has a lag effect associated with it.
Meaning that it might take sometime for impacts of technological changes to be absorbed and effectively executed by society, thus creating changes in our economy and enhancing productivity. Joseph Schumpter, further, hypothesizes that it takes certain economic conditions to even foster technological advances. One favorable circumstance, which always facilitates and partly explains a boom, must be particularly remembered, namely the state of affairs created by every period of depression. As is well known, there are generally masses of unemployed, accumulated stocks of raw materials, machines, buildings and so forth offered below cost of production, and there is as a rule an abnormally low rate of interest. The repeal of these crucial advancements had two major implications on the proposed effects of environmental regulation.