Environmental risks are governed by more than 11,000 pages of federal rules and regulations, promulgated by a variety of federal acts. This research focused on the question of whether these actions favor large existing manufacturers at the expense of small new manufacturers. To the extent that the formation of small establishments are dissuaded by onerous environmental regulations, large establishments are provided with a competitive advantage and pollution-intensive industries will likely evolve toward greater concentration. Scope and Methodology Economic theory predicts that environmental regulations deter the births of small establishments through resultant increases in the minimum efficient scale of plant operations. Regulations impose higher costs by requiring more complicated business administrative and operational activities.
Regulations also create more difficult facility siting and permitting procedures.
The mediated regression methodology allows for a determination of whether the barrier effects operated through an increase in industry minimum efficient scale or through other mechanisms. The data sources used in the study include the U.S. Small Business Administration's U.S. Establishment and Enterprise Longitudinal Micro Data file, and the U.S. Department of Commerce's Census of Manufacturers, Annual Survey of Manufacturers, Survey of Plant Capacity, and Report of Pollution Abatement Costs and Expenditures. Small establishments are, however, likely to be independent firms. Moreover, the robustness of the results of comparisons of small and large establishments refutes the notion that the results are biased by the chosen unit of analysis. Highlights Environmental regulations exert a remarkably consistent deterrent effect on small establishment formation over the three periods studied.