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Interlinked Firms and the Consequences of Piecemeal Regulation

Author

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  • León-Ciliotta, Gianmarco
  • Hjort, Jonas
  • Hansman, Christopher
Abstract
Industrial regulations are typically designed with a particular policy objective and set of fi rms in mind. When input-output linkages connect fi rms across sectors, such "piecemeal" regulations may worsen externalities elsewhere in the economy. Using daily administrative and survey data, we show that in Peru's industrial fishing sector, the world's largest, air pollution from downstream ( fishmeal) manufacturing plants caused 55,000 additional respiratory hospital admissions per year as a consequence of the introduction of individual property rights (over fish) upstream. The upstream regulatory change removed suppliers' incentive to "race" for the resource and enabled market share to move from inefficient to efficient downstream fi rms. As a result, the reform spread downstream production out across time, as predicted by a conceptual framework of vertically connected sectors. We show evidence consistent with the hypothesis that longer periods of moderate air polluting production can be worse for health than concentrating a similar amount of production in shorter periods. Our fi ndings demonstrate the risks of piecemeal regulatory design in interlinked economies.

Suggested Citation

  • León-Ciliotta, Gianmarco & Hjort, Jonas & Hansman, Christopher, 2018. "Interlinked Firms and the Consequences of Piecemeal Regulation," CEPR Discussion Papers 12584, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12584
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    Cited by:

    1. Joseph Aldy & Matthew J. Kotchen & Mary Evans & Meredith Fowlie & Arik Levinson & Karen Palmer, 2021. "Cobenefits and Regulatory Impact Analysis: Theory and Evidence from Federal Air Quality Regulations," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 2(1), pages 117-156.
    2. Christopher Hansman & Jonas Hjort & Gianmarco León-Ciliotta & Matthieu Teachout, 2020. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3570-3625.
    3. Andr's Gonz'lez Lira & Ahmed Mushfiq Mobarak, 2018. "Slippery Fish: Enforcing Regulation when Agents Learn and Adapt," Cowles Foundation Discussion Papers 2143R, Cowles Foundation for Research in Economics, Yale University, revised Mar 2021.
    4. Li, Lixing & Liu, Kevin Zhengcheng & Nie, Zhuo & Xi, Tianyang, 2021. "Evading by any means? VAT enforcement and payroll tax evasion in China," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 770-784.
    5. Pedro Naso & Yi Huang Author Name: Tim Swanson, 2017. "The Porter Hypothesis Goes to China: Spatial Development, Environmental Regulation and Productivity," CIES Research Paper series 53-2017, Centre for International Environmental Studies, The Graduate Institute.
    6. Pedro Naso Author name: Tim Swanson, 2017. "How Does Environmental Regulation Shape Economic Development? A Tax Competition Model of China," CIES Research Paper series 54-2017, Centre for International Environmental Studies, The Graduate Institute.
    7. Joan Calzada & Meritxell Gisbert & Bernard Moscoso, 2021. "The hidden cost of bananas: pesticide effects on newborns’ health," UB School of Economics Working Papers 2021/405, University of Barcelona School of Economics.
    8. Pedro Naso & Yi Huang & Tim Swanson, 2020. "The impact of environmental regulation on Chinese spatial development," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 28(1), pages 161-194, January.
    9. Pedro Naso, 2019. "Environmental Regulation in a Transitional Political System: Delegation of Regulation and Perceived Corruption in South Africa," CIES Research Paper series 59-2019, Centre for International Environmental Studies, The Graduate Institute.

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    More about this item

    Keywords

    Industrial regulations; Coasian solutions; Air pollution; Externalities;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • I1 - Health, Education, and Welfare - - Health

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