Three economists, in a study published by the National Bureau of Economic Research, said extensive pollution and environmental regulations led to a 4.8 percent decline in productivity and reduced profits by nearly 9 percent from 1972 to 1993.
Michael Greenstone of MIT and John List and Chad Syverson of the University of Chicago said the annual cost to companies of compliance with the regulations was about $21 billion.
"There are good reasons to think environmental regulations might increase production costs, but we didn't know how large the effect might be," Syverson said in a Chicago release Tuesday. "We are not saying that the regulations are a bad idea, but we wanted to know the cost."
The economists examined how the regulations, which went into effect as a result of the Clean Air Act of 1970, impacted the total factor productivity of manufacturing plants.
The Clean Air Act provides for action against companies found to be polluting and allows the Environmental Protection Agency to mandate installation of pollution abatement technologies on manufacturing plants.
"This paper demonstrates that government policy can play an important role in shaping [total factor productivity]," List said. "To date, we have little credible empirical evidence on the magnitude of such policy effects, with our study providing among the first such estimates for environmental regulations."