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 Regulatory Reform Seminar 
 
 PROCEEDINGS AND BACKGROUND PAPERS 
 
 
 
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 U.S. DEPARTMENT OF COMMERCE 
 
 Office of the Secretary 
 
 
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Regulatory Reform Seminar 
 
 PROCEEDINGS AND BACKGROUND PAPERS 
 
 Host: Juanita M. Kreps, Secretary 
 
 Chairman: Jerry J. Jasinowski, Assistant Secretary for Policy 
 
 Sponsor: Lucy Falcone, Deputy Assistant Secretary for Policy 
 
 Coordination: Office of Regulatory Economics and Policy 
 
 Robert T. Miki, Director, Marian L. Forbes, Editor 
 of Papers and Proceedings, William B. Sullivan, 
 Bruce G. Humphrey, Roger J. Mallet, Mark S. Reinsberg 
 Anna Maria Kinser and Kelly L. Dawson 
 
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 U.S. DEPARTMENT OF COMMERCE 
 
 Office of the Secretary 
 
 October 17, 1978 
 
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 1 
 
INTRODUCTION 
 
 I am pleased to make available the proceedings and background papers 
 of the Regulatory Reform Seminar hosted by the Department of Commerce 
 on October 17, 1978. 
 
 The purpose of the seminar was to obtain the views of a diverse group on 
 the subject of regulatory reform in order to determine major areas of 
 consensus and disagreement, and to identify those areas where additional 
 research would be helpful. The seminar covered three broad areas: the 
 costs and benefits of regulation; institutional mechanisms for improving 
 the regulatory system; and alternative regulatory techniques and alter- 
 natives to regulation. The participants included corporate executives, 
 senior government officials, academic scholars, and representatives of 
 public interest organizations . 
 
 Our discussion was marked by greater consensus than might be expected 
 from a group reflecting such diverse backgrounds, perspectives, and 
 positions. Clearly, there was willingness among business, government, 
 and other participants to find a common ground for cooperation. 
 
 There was a general appreciation of the enormity of the problem and the 
 need for a better understanding of the nature, scope, magnitude, and 
 effects of the present regulatory system. At best, there are indicators 
 of the magnitude of the cost of regulations — in the neighborhood of $100 
 billion — but little perspective on what the ramifications are of such a 
 magnitude relative to benefits. There is sketchy perspective also on 
 the widely varying processes that make up the regulatory system. 
 
 The discussion of costs and benefits reached a consensus that the 
 assessment of costs and benefits should be an integral part of the regu- 
 latory process. It was recognized that there are difficult measurement 
 problems. Data inadequacies and biases in estimates were frequently 
 cited as two of the major problems. There were divergent views on the 
 appropriate weighing of health vs economic considerations. Some parti- 
 cipants emphasized that attainment of the health protection goal is the 
 overriding consideration. Others contended that even in such cases, 
 regulation could be framed so that more people are protected for the 
 same (or less) expenditure of resources. This polarization of views 
 was not reconciled. 
 
 The discussion of costs and benefits highlighted a very important 
 point — the need to distinguish between "cost" and "economic impact." 
 Cost generally refers to the cost of compliance and, in a complete 
 accounting, would include administrative, legal, information, compliance, 
 and other costs resulting from regulations. Economic impact, on the 
 other hand, includes a consideration of the direct and indirect effects 
 of regulation (the effect of regulation of one industry on a related 
 industry, for example) and the incidence of a regulation (who benefits 
 
 i 
 
11 
 
 and who bears the cost) . Economic impact also includes consideration 
 of positive or negative effects on technological change, economic growth, 
 industry structure and performance, and international trade. How 
 clearly we make the distinction between costs and economic impact can 
 significantly affect perceived choices and priorities in regulation. 
 
 There was general agreement on the need to improve regulatory processes 
 at the agency level. Although processes vary by agency and are extremely 
 complex, several common regulatory weaknesses were highlighted in the 
 seminar. These were: unnecessary burdens associated with paperwork, 
 inadequate consideration of cost-effective alternatives, and the lack of 
 procedures to eliminate or modify outdated regulations. In these regards, 
 Executive Order 12044, "Improving Government Regulations," was considered 
 to be a good basis for improvement. Many participants felt that the 
 provisions of the Executive Order should be extended to cover the inde- 
 pendent regulatory agencies, many of whom are voluntarily complying with 
 the Executive Order. 
 
 The Regulatory Analysis Review Group (a senior level interagency group 
 composed of Executive Branch representatives) was mentioned as an 
 important element in improving analyses of regulations. The Regulatory 
 Analysis Review Group analyzes specific regulations, thereby encouraging 
 agencies to improve their own analyses. 
 
 It was also noted that we should not overlook the work that agencies 
 themselves have advanced: to eliminate unnecessary regulations, such 
 as the Occupational Safety and Health Administration's elimination of 
 nearly 1,000 outdated rules; to develop innovative alternative methods 
 of regulation, such as the Environmental Protection Agency's offset 
 policy to improve the Nation's air quality; and to coordinate, on an 
 interagency basis, the control of toxic substances. 
 
 The participants endorsed efforts to seek regulatory measures that are 
 less disruptive in their effects and are more incentive oriented. It 
 was generally recognized that: incentive measures should be considered 
 on a case-by-case basis; criteria should be developed to determine con- 
 ditions under which specific forms of alternatives to regulations are 
 appropriate; and alternative methods may increase the government's 
 administrative costs but lead to lower social costs attributable to a 
 particular regulation. 
 
 Alternative approaches include deregulation. Within the area of 
 economic regulations, the participants agreed on the merits of deregula- 
 tion, as has been accomplished, for example, in air transportation. 
 Although specific measures were not discussed in depth, it was noted that 
 further opportunities for deregulation exist in surface freight trans- 
 portation (trucking and rail) and communication. 
 
 The participants felt that much more work needs to be done to assess 
 more adequately regulations in a context broader than that of a single 
 agency. Regulations frequently interact and the tradeoffs and cumulative 
 effect must be more fully taken into account in establishing priorities. 
 
Ill 
 
 There was general endorsement of the "sunset review" of regulations, 
 perhaps because it represents a good balancing of the views and 
 prerogatives of competing power centers. Such a periodic review was 
 considered appropriate for both economic and social regulations. 
 
 In the discussion of institutional mechanisms for better management, it 
 was recognized that congressional mandates vary markedly — in some cases 
 specifying in great detail the nature, form, and timing of regulations; 
 in other cases, providing broad guidelines under which regulatory agencies 
 are to formulate regulations. As a result, there are marked differences 
 in the ways regulatory agencies operate and respond to economic and social 
 problems. Some participants felt that regulatory objectives are met 
 effectively by decentralized management, i.e., by the agency authorized to 
 implement the congressional mandate. Others felt the regulatory system 
 has become so large and complex that more centralized Executive Branch 
 oversight is necessary to reduce the overlaps and conflicts created by 
 each regulatory agency going its own way. There was considerable diver- 
 sity of opinion on the appropriate roles of the Congress, the Executive 
 Office of the President, and the Executive Branch in the management of the 
 regulatory system, [shortly after the seminar, the President established 
 the U.S. Regulatory Council, which is assigned the role of providing an 
 overview of the regulatory system and examining issues that cut across 
 agency lines. The Regulatory Council has issued a "Calendar" of forth- 
 coming regulations and will continue to do so on a semiannual basis.] 
 
 A new institutional means to gain greater overview and management — a 
 "regulatory budget" — was discussed by the participants. Regulatory agency 
 and public interest participants expressed concerns about the uses of a 
 regulatory budget. Business, academic, and nonregulatory Federal repre- 
 sentatives felt that the concept has merit but further exploratory work is 
 necessary. They emphasized, as we recognize, that a full-blown regulatory 
 budget is many steps away. Aside from legal, organizational, and adminis- 
 trative issues, initial conceptual problems, such as the development of 
 acceptable documentation of costs and the appropriate consideration of 
 benefits, need to be resolved. A pilot project, which is an appropriate 
 next step, is underway within the Department of Commerce. We expect it 
 to show the difficulties that are involved and provide more documentation 
 on the feasibility of a regulatory budget. 
 
 I have sketched above what I consider to be the major points of the seminar 
 discussion. The reader will find a greater discussion of the issues and 
 problems in the proceedings and background papers . 
 
 From the Department's standpoint, the seminar was very productive. Perhaps 
 our only regret was that time did not permit us to push further into these 
 and other areas of regulatory concerns. We will try to do so in subsequent 
 seminars. 
 
 liowski 
 
 retary for Policy 
 
 
 
Digitized by the Internet Archive 
 
 in 2012 with funding from 
 
 LYRASIS Members and Sloan Foundation 
 
 http://archive.org/details/regulatoryreformOOregu 
 
V 
 
 REGULATORY REFORM SEMINAR 
 Contents 
 
 Page 
 
 PROCEEDINGS OF THE SEMINAR 1 
 
 PARTICIPANTS 3 
 
 Impacts of Regulations 8 
 
 Management of Regulatory Policy 27 
 
 Alternative Techniques for Achieving Regulatory Goals. ... 48 
 
 Wrapup 64 
 
 BACKGROUND PAPERS 75 
 
 PREFACE TO BACKGROUND PAPERS 77 
 
 Costs and Benefits of Regulation : 
 
 A Survey of Studies A-l 
 
 Summary A-3 
 
 Table of Contents A-5 
 
 Synopsis A- 7 
 
 Summary Tables on Costs of Government Regulation A-13 
 
 Annotations of Studies on the Impact of Government Regulation A-29 
 
 Extensive Bibliography on Regulatory Impact Studies A-125 
 
 Data Sources on the Costs of Government Regulation A-139 
 
 Index A-149 
 
 The Regulatory Budget : 
 
 Concepts and Information Requirements B-l 
 
 Summary B-3 
 
 Table of Contents B-ll 
 
 Introduction B-13 
 
 The Conceptual Framework B-14 
 
 Budget Presentation B-31 
 
 Information Requirements B-49 
 
 Alternatives to Regulation : 
 
 Possibilities; Experience; Prospects C-l 
 
 Summary C-3 
 
 Table of Contents C-ll 
 
 Introduction C-13 
 
 Alternative Approaches C-17 
 
 Criteria C-23 
 
 Use of Alternatives C-28 
 
VI 
 
 BACKGROUND PAPERS (cont'd.) Page 
 
 Synopsis C-42 
 
 Annotated Bibliography C-44 
 
 Bibliography C-55 
 
 Impact of Regulation on Industrial Location Decisions . . . . D-l 
 
 Summary D-3 
 
 Table of Contents D-9 
 
 Scope and Objectives of Report D-ll 
 
 Potential Impacts of Clean Air Acts on Industrial Location . D-21 
 
 Use of Analytic Decisionmaking Locational Models D-37 
 
 Predicting the Importance of Federal Regulations in Specific 
 
 Location Decisions D-55 
 
 Concluding Remarks D-64 
 
 Appendix: Annotated Bibliography D-67 
 
 Index D-175 
 
V1X 
 
 Charts , Tables, and Figures 
 
 Page 
 
 PROCEEDINGS OF THE SEMINAR 
 
 Chart 1 Impacts of Regulation 9 
 
 Chart 2 Possible Actions to Improve the Regulatory- 
 System 28 
 
 Chart 3 Alternative Approaches and Their Major 
 
 Variants 50 
 
 BACKGROUND PAPERS 
 
 Costs and Benefits of Regulation : 
 A Survey of Studies 
 
 Table 1 Impact of All Regulations on the National 
 
 Economy A-15 
 
 Table 2 Impact of Multiple Regulations on the 
 
 National Economy A-16 
 
 Table 3 Impact of Multiple Regulations on a Specific 
 
 Group or Industry A-18 
 
 Table 4 Impact of a Single Regulation on the 
 
 National Economy A-20 
 
 Table 5 Impact of Single Regulations on a Specific 
 
 Group or Industry A-25 
 
 Table 6 Data Sources A-26 
 
 Table 7 Economic Loss from Regulation of Surface 
 
 Freight, 1960s A-38 
 
 Table 8 A Comparison of Effects of Selected Environ- 
 mental Programs on Macroeconomic Variables A-48 
 
 Table 9 Summary of Estimated Costs of Regulations 
 
 Considered A-61 
 
 Table 10 Summary Distribution of Pollution Control 
 
 Costs as a Percent of Family Income (1972) A-68 
 
 Table 11 Summary Distribution of Pollution Control 
 
 Costs as a Percent of Family Income (1976) A-69 
 
van 
 
 Costs and Benefits of Regulation (continued) Page 
 
 Table 12 Summary Distribution of Pollution Control 
 
 Costs as a Percent of Family Income (1980) A-70 
 
 Table 13 Distribution of Capital Requirements for 
 
 Environmental Control of the Steel Industry 
 
 of the United States by Type of Pollution A-75 
 
 Table 14 Steel Industry Operating Costs Associated 
 With Achieving Compliance With Long-Term 
 Environmental Control Regulations, by Type 
 of Pollution A-75 
 
 Table 15 Summary of Iron and Steel Industry Capital 
 
 Requirements A-76 
 
 Table 16 Projected Steel Industry Capital Costs of 
 
 Environmental Control , By Type A-76 
 
 Table 17 Major Features of the Health Care Insurance 
 Plan Supported by the American Medical 
 Association, 1974 A-91 
 
 Table 18 Major Features of the Long-Ribicof f 
 
 Catastrophic Health Insurance and Medical 
 
 Assistance Reform Plan, 1974 A-92 
 
 Table 19 Major Features of the National Health 
 
 Insurance Plan Supported by the Administration, 
 
 1974 A-93 
 
 Table 20 Major Features of the National Health Care 
 Services Plan Supported by the American 
 Hospital Association, 1974 A-94 
 
 Table 21 Major Features of the National Health 
 Insurance Plan Supported by the Health 
 Insurance Association of America, 1974 A-95 
 
 Table 22 Major Features of the Kennedy-Mills National 
 
 Health Insurance Plan, 1974 A-96 
 
 Table 23 Major Features of the Health Security Plan 
 Supported by the AFL-CIO ( Kennedy -Gr if f iths 
 Bill), 1974 A-98 
 
 Table 24 Federal, State, and Private Expenditures for 
 Alternative National Health Insurance Plans, 
 Based on Prices and Population Projected for 
 1975 A-100 
 
IX 
 
 Costs and Benefits of Regulation (continued) Page 
 
 Table 25 Federal Tax Subsidies under 
 
 Alternative National Health Insurance 
 
 Plans, 1975 A-101 
 
 Table 26 Increases in Federal Costs under 
 
 Alternative National Health Insurance 
 
 Plans, by Source of Increase, 1975 A-102 
 
 Table 27 Employer Contributions and Subsidies, 
 
 Enrollment, and Premiums for Alternative 
 
 National Health Insurance Plans, 1975 A-103 
 
 The Regulatory Budget : 
 
 Concepts and Information Requirements 
 
 Fig. 1-A Economic Policy and the Budget: Current 
 
 Process B-21 
 
 Fig. 1-B Economic Policy, the Budget and Regulatory 
 
 Policy: Proposed Integration B-22 
 
 Table 1 Hypothetical Government Cost Account for 
 
 a Mine Safety Program B-32 
 
 Table 2 Object Classification: Mine Safety Program B-34 
 
 Table 3 Private Sector Costs of Mine Safety 
 
 Regulations B=-35 
 
 Table 4 Private Sector Costs of Mine Safety 
 
 Regulations by Object Classification B-36 
 
 Table 5 Coal Mine Safety Regulation Program Effects B-38 
 
 Table 6 Costs Imposed by Mine Safety Requirements 
 
 on Other Program Activities B-39 
 
 Table 7 Mine Safety Budget Authority B-41 
 
 Table 8 Mine Safety Regulatory Authority B-42 
 
 Table 9 Aggregate Mine Safety Costs - B-43 
 
 Table 10 Format for Summary of Costs of Mine Safety 
 
 Regulation B-44 
 
 Table 11 Prospective Methods for Collecting Cost 
 
 Information B-55 
 
Alternatives to Regulation : Page 
 
 Possibilities; Experience; Prospects 
 
 Table 1 Alternative Approaches and Their Major 
 
 Variants C-18 
 
 Fig. 1 Criteria for Evaluating Alternatives to 
 
 Regulation C-27 
 
 Table 2 Nationwide N0 X Emission Estimates, 1976 C-30 
 
 Table 3 Summary of Evaluation Criteria C-37 
 
 Impact of Regulation on Industrial Location Decisions 
 
 , , Relative Importance of Factors in Industrial 
 
 Location D-6 
 
 Table 1 Air Quality Control Regions Expected to 
 Exceed the National Standards for Total 
 Suspended Particulates by the Statutory 
 Deadline D-23 
 
 Table 2 Significant Deterioration and Classes of 
 
 Areas D-25 
 
 Table 3 Clean Air Act Actions, Responsible Agency, 
 
 and Some Possible Impacts D-33 
 
 Table 4 1976 Needs Survey Forecasts for Municipal 
 
 Wastewater Treatment Facilities D-39 
 
 Table 5 States Where State and Local Average Annual 
 Share of Capital Expenditure Exceeds Ten 
 Percent of Total State and Local Borrowing 
 (Categories I Through V) D-40 
 
 Table 6 Analytic Model for Estimating Interregional 
 
 Effects of Air Pollution Legislation D-45 
 
 Table 7 Control System Direct and Looped Relation- 
 ships Between Decisionmakers of Various 
 Hierarchical Levels and Each of the Elements 
 of the Decision Environment D-49 
 
 Table 8 Flow Diagram of Analytical Approach to 
 Assessment of Environmental -Economic 
 Relationships D-53 
 
 Table 9 Allowable Air Quality Increments Under 
 Alternative Significant Deterioration 
 Proposals D-58 
 
XI 
 
 Impact of Regulation on Industrial Location Decisions Page 
 
 (continued) 
 
 Table 10 Proposed Best Available Control 
 
 Technology (BACT) Definitions (House) D-59 
 
 Table 11 Proposed BACT Definitions (Senate) D-60 
 
 Table 12 Facility Closings Involving Pollution 
 
 Abatement Requirements D-62 
 
PROCEEDINGS OF THE 
 
 SEMINAR 
 
U. S. Department of Commerce 
 Regulatory Reform Seminar 
 
 Participants 
 
 EULA BINGHAM, ASSlSta.nl Secretary 
 
 ior Occupational Safety and Health 
 Li. S. Ve.pasitme.nt oi labor 
 
 BARRY P. BOSWORTH, ViXCCtor 
 
 Council on Wage and VhA.ce Stability 
 
 FLETCHER L. BYROM, Chairman 
 
 Koppesis Company, Inc. and 
 Committee ftost Economic Vevelopment 
 
 FRANK T. CARY, Chairman 
 
 Jnternatlonal Business Machines Costp. 
 
 edwin t. clark, ii, Special Assistant to the Administrator 
 Environmental Protection Agency ion. 
 Barbara blum, Veputy Admlnls tstato r 
 
 allen r. Ferguson, President 
 Public Interest Economics Center. 
 
 mark green, Vlrector 
 Congress Watch 
 
 thomas d. hopkins, Assistant Vlrector 
 Council on Wage and Price Stability 
 
 hendrik s. houthakker, Proiessor oi Economic* 
 Harvard University 
 
 MARVIN H. KOSTERS, VlTCCtor 
 
 Center ior the Study oi Government Regulation 
 
 American Enterprise Institute ior Public Policy Research 
 
 Richard l. lesher, President 
 
 The Chamber oi Commerce oi the United States 
 
 Keith r. mckennon, Vlrector oi Public Aiialsis 
 The Vow Chemical Company ior 
 paul f. oreffice, President 
 
 john r. meyer, 7 907 Foundation Proiessor oi Transportation, 
 
 Logistics and Vlstrlbution 
 Harvard Business School 
 
WILLIAM D. NORDHAUS, Mmb&l 
 
 CounelZ o{ Economic kdvlAenA 
 
 ALICE M. RIVLIN, VlAeeton. 
 
 Congnet>i> tonal Budget 0{{lee 
 
 CHARLES L. SCHULTZE, CkaJJimCLVl 
 
 CounelZ o{ Economic kdvti>enj> 
 
 v. kerry smith, ToJULow, Quality o{ the Environment division 
 Renounce* {on. the Vutuxe 
 
 albert t. sommers , Senlon Ulee Vnehldent and Chle{ Economist 
 The Con{enenee Bo and 
 
 W. HARRISON WELLFORD, Executive ki,i>Oclate VVtldtOH. 
 
 {on. Reon.ganlzatU.on and Management 
 0{{lee o{ Management and Budget 
 
 U. S. DEPARTMENT OF COMMERCE 
 JUANITA M. KREPS 
 
 SecAetany 
 
 SIDNEY HARMAN 
 
 linden. Seen.etan.ij 
 
 JERRY J. JASINOWSKI 
 
 A&ilAtant SeenetaAy {on. Policy 
 
 C. L. HASLAM 
 
 General Counsel 
 
 COURTENAY M. SLATER 
 
 Chle{ Economist 
 
 LUCY FALCONE 
 
 deputy ki>t>u>tant Seenetany {on Volley 
 
PROCEEDINGS OF THE SEMINAR 
 
 October 17, 1978 
 
 SECRETARY KREPS : Good morning. I want to welcome all of you to this, 
 what we consider very important, meeting. It is on a subject that is very 
 much in our minds as your attendance indicates it is in yours. Since the 
 Nation first embraced regulation as a solution to economic problems with the 
 formation of the Interstate Commerce Commission in 1877, we have turned 
 increasingly to regulation as a way of achieving social ends. 
 
 These regulatory efforts have borne a great deal of fruit. Regulation has 
 insured the availability of goods and services. It has given us a cleaner 
 environment, safer and healthier work places, safer food and drugs, more 
 fuel efficient automobiles. 
 
 We tend to take for granted the benefits of regulation, although in many cases, 
 we don't know precisely how to quantify the benefits that are forthcoming. But 
 we are becoming increasingly aware that regulation also affects particular 
 sectors and economic growth overall. 
 
 Moreover, public concern about inflation coupled with a seemingly popular anti- ' 
 government sentiment is being translated now into a call for less regulation 
 and less interference by the government across-the-board. 
 
 It is important that we respond seriously to the public's concern if we are to 
 avoid a reversal of these improvements in the quality of life — improvements 
 that we have gained largely through regulation. 
 
 The question before us is how can we best assess the many regulatory objectives . 
 and programs, given their cost and the alternative demands on resources? 
 Interest in regulation is heightened further by the fact that the costs in 
 total are growing rapidly. 
 
 We read reports that regulations add costs of at least $100 billion a year, 
 that regulation adds to the rate of inflation, that regulation has reduced 
 productivity. It is argued that some regulations have adverse effects on our 
 rate of technological innovation, on our ability to compete in international 
 markets and that generally, regulation has perpetuated inefficiency in the 
 economy . 
 
 In response, several steps have been taken. The President's Executive Order 
 on Improving Government Regulations attempts to improve the clarity, the 
 simplicity and the overall effectiveness of the regulations. A Regulatory 
 Analysis Review Group is now in place. Agencies have taken significant steps 
 to improve their procedures. 
 
 The interagency regulatory liaison group formed by the Environmental Protection 
 Agency, the Food and Drug Administration, the Occupational Safety and Health 
 
Administration, and the Consumer Product Safety Commission is an example. The 
 elimination of many unnecessary regulations by OSHA is another example. These 
 efforts deal for the most part with individual regulations and the performance 
 of specific programs. 
 
 But I would suggest that today we concentrate on the aggregate regulatory 
 picture. For in the President's words, "We need to find a way to set priori- 
 ties among regulatory objectives and understand more fully the combined effects 
 of our regulatory actions on the private economy." 
 
 Thus, we should like to pool our ideas on ways to improve the management and 
 control of the regulatory process, on ways to integrate regulatory policy into 
 overall economic policy and ways to serve the priorities of the economy and 
 the American society. 
 
 To do this, it seems to me we need at least three things. First, we need 
 better data on the impact of regulation on the economy as measured by costs and 
 benefits. Second, we need to improve management to assure that regulatory 
 priorities and goals are pursued in the least costly manner. And third, we 
 need regulatory alternatives and a consideration of the mechanisms through which 
 to pursue these regulatory objectives. 
 
 Clearly, regulatory policy is not something we can fully explore in a one-day 
 seminar. What we hope to accomplish instead in this short time is to bring a 
 better perspective reflecting our varied backgrounds and experiences. 
 
 We are pleased to have as participants around the table persons from the 
 regulatory agencies, from the executive branch, from the Congress, private 
 industry, public interest groups, from academia and from other research 
 organizations . 
 
 Some of you have spent years and years struggling with these questions. Yet, 
 I hope you will welcome this day's discussion as a means of bridging some gaps 
 in our common knowledge. Since it is a seminar with a very broad agenda, I will 
 ask each of you as participants to make each comment in the briefest possible 
 fashion. 
 
 Jerry Jasinowski, who is chairing today's meeting will first indicate the order 
 in which we will proceed through the agenda which you have and then he will 
 invite your participation. It is my understanding that there will be a wrapup 
 session this afternoon and that questions and comments from the audience can be 
 taken at that time. 
 
 We would also be pleased to have written statements from any of you, the 
 audience or the participants, for inclusion in the record. I hope you will 
 find this as important a day as we in the Commerce Department think it will be. 
 
 I hope we all conclude with a better understanding of the problems that face 
 us and perhaps some insights as to what the next steps might be. I will now 
 turn the program over to Jerry Jasinowski. 
 
MR . JAS INOWS KI : Thank you very much, Madam Secretary. Let me briefly 
 lay out the agenda and introduce the first topic. 
 
 As the Secretary has indicated, the purpose of this seminar is to see where we 
 can push forward the state of knowledge in two or three major areas of the 
 regulatory debate and how this relates to broader questions of economic policy. 
 
 We are not here to advocate because we are humble about what we know. We want 
 to pursue this as a genuine seminar where there is debate and exchange of 
 ideas. We hope we can focus primarily on the questions of how we achieve many 
 of our regulatory goals because we think there is a broad consensus about the 
 goals themselves. 
 
 The agenda for today has four parts. First, an assessment of the impacts of 
 regulations on the economy in terms of costs and benefits. But beyond that, 
 in terms of the impacts on the firm, the worker in such areas as jobs and 
 inflation. We want to discuss the gaps in our knowledge as well as what the 
 present state of knowledge tells us. We hope to focus on this for the first 
 hour. 
 
 The second major item on the agenda is how to improve the management of 
 regulatory policy, particularly as it relates to general economic policy. We 
 want to examine a broad range of proposals that have been suggested, including 
 a regulatory budget. This will complete the morning discussion. 
 
 In the afternoon, we will begin by discussing alternative techniques for 
 achieving regulatory goals. This can mean alternative ways to achieve a 
 regulatory goal through conventional performance or specification standards 
 or the broader alternatives of such things as tax incentives and fees or mixed 
 approaches that use both. 
 
 We will end the afternoon session with a wrapup for suggested areas of 
 additional research and recommended actions. I might add that several parti- 
 cipants will be leaving early or coming late because they are working on 
 regulatory policy issues this morning in the context of the Administration's 
 review of those areas . 
 
 We will modify the agenda somewhat to take into account people who will have 
 to come and go because of their own schedules. 
 
 Background papers have been prepared and distributed to each participant and 
 these papers are fair game for discussion. We would expect and welcome a 
 discussion that is broader, however, given the range of expertise we have with 
 us today . 
 
 The Secretary has indicated the desire for us to move promptly through each 
 section, asking each of you to limit your comments to three or four minutes on 
 an individual subject. There will be a complete transcript, prepared state- 
 ments will be accepted and each participant will have an opportunity to modify 
 his or her comments in the prepared transcript which we expect to publish. 
 
Let me turn very briefly to the first subject which is the question of the 
 impacts of regulation. We have a chart at the back of the room and each of 
 you have charts at your table. This is only a very crude view of the impacts 
 of regulation. 
 
 In the first instance, although we have not mentioned benefits and costs on 
 the chart, regulation will have the kind of impacts shown. One of the major 
 items of inquiry will be the extent to which we have good or bad estimates of 
 costs and benefits. 
 
 As those of you who have reviewed the paper have seen, the paper shows a mix 
 of apples and oranges in terms of how costs and benefits are measured. I 
 think we want to push ahead and see what are the areas we ought to set as 
 priorities in improving these estimates. 
 
 In addition, beyond the direct estimates of costs and benefits, we want to 
 turn to the other impacts that regulations can have on the economy. We want 
 to look at impacts on productivity, on economic growth, on inflation, etc., 
 and the chart lists some of these. 
 
 With respect to productivity, Edward Denison in a recent study has concluded 
 that growth of productivity has been reduced by one-fourth as a result of 
 environmental, health, and safety regulations. On the other hand, workplace 
 safety and health regulations have improved worker productivity and we need to 
 understand better how these improvements occur. 
 
 To highlight another, there are arguments about economic growth on both sides, 
 that it has an adverse effect on economic growth and it has a positive effect. 
 On the positive side, new industries are created and the quality of life is 
 improved in ways not presently measured by the Gross National Product. 
 
 Yet, Paul MacAvoy estimates GNP has been reduced by one-fourth to one-half a 
 percentage point per year. 
 
 Finally, we have inflation which is on everyone's mind and we have estimates 
 indicating that regulations add significantly to inflation although there is 
 controversy about how significantly. We would hope to discuss that. 
 
 With that brief introduction, we would like to open it up to comments from the 
 group-at-large in terms of the impacts of regulations, in terms of costs and 
 benefits and beyond that, in terms of these other economic variables. 
 
 Marv, you have done a good bit of work on cost estimates. Perhaps you could 
 summarize for us your review of the paper and the literature in this area, and 
 what directions seem most useful for us to pursue in terms of future research 
 and actions. 
 
 MR . KOSTERS : Commenting on cost of regulation issues in light of the 
 material prepared for this seminar is not an easy task, because the material 
 is an extensive compilation of many studies. It is a very useful compilation, 
 
CHART 1 
 
 IMPACTS OF REGULATION ON 
 
 • Paperwork 
 
 • Productivity 
 
 • Growth 
 
 • Industry Structure 
 
 • Inflation 
 
 • Capital Formation 
 
 • Technology 
 
10 
 
 of course, of the kind of cost information that there is available on the 
 basis of these studies. 
 
 As I read this material, and as I thought about the subject, it seemed to me 
 that some kind of taxonomy or classification scheme can be useful because of 
 the diversity of areas of regulation. The discussion in this material is 
 based on a classification in terms of the scope of regulations covered in the 
 various studies. 
 
 It seemed to me that another kind of classification that would be useful for 
 this discussion is one based on the kinds of costs that are associated with 
 regulations. The first kind of cost I would single out is what I would call 
 "administrative costs." Costs in this category would include not only the 
 costs to government agencies of developing and publishing regulations and 
 monitoring compliance and so on, but also costs of the same general kind that 
 are incurred by private firms. 
 
 These costs are relatively straightforward in principle to measure, and indeed 
 on the government's side, much of the data are readily available. 
 
 A second kind of cost I would call "compliance costs." In their simplest form, 
 they involve things like the costs of installation, operation, and maintenance 
 of an additional piece of equipment to abate pollution, to improve safety, or 
 for some other public purpose. 
 
 In the simplest cases, costs of this kind are also reasonably straightforward 
 to measure. However, measurement of costs of this kind becomes far more 
 complicated when modifications of production processes are involved, so that 
 all costs become joint costs of producing products and reducing adverse side 
 effects. 
 
 This is the kind of problem, of course, that we are familiar with in other 
 regulatory contexts, but where we do make estimates under those circumstances. 
 
 The third kind of costs I would call "transfers." They are, in a sense, not 
 economic costs at all, but they are instead transfers of income of one group 
 to another, often overlapping, group. They may occur, for example, with 
 regulations like the minimum wage, where some group of employed persons 
 receives higher wages while consumers of the products and services these 
 workers produce pay higher costs . 
 
 This is not a "net" cost to the economy, and in that sense it's different from 
 some of the other kinds of costs — although transfers associated with regulation 
 can also be expected to be accompanied by "net" costs. 
 
 The fourth category of costs, I would call "efficiency costs" or "inefficiency 
 costs," and this category includes not only deadweight losses, but effects on 
 innovation, long-term effects of various sorts, dissipation of rents, and the 
 like. 
 
 I think one reason why this kind of classification is useful is that different 
 methods are required for estimating these various components of costs. The 
 
11 
 
 first two components, what I have called "administrative costs" and 
 "compliance costs" are the kind of costs that can be estimated by firms 
 examining their records, tabulating cost information, and analyzing the data 
 along the lines, for example, of the study now underway by Arthur Andersen 
 for The Business Roundtable. 
 
 The other two kinds of costs — "transfers" and "inefficiencies" — need to be 
 estimated with reference to an economic model of some sort, and an estimating 
 technique needs to be applied to relevant data. These costs arise because of 
 responses to incentives and because of responses to constraints, and they are 
 in that respect somewhat more subtle costs than the costs, for example, of 
 installing and operating an additional piece of equipment. 
 
 As I look through the cost estimates that are summarized in the material for 
 this seminar — to be brief about this — it seems to me that something on the 
 order of a third of the costs seem to be administrative costs incurred by the 
 firms involved, incurred by agencies in promulgating regulations, incurred by 
 the court system in resolving disputes, and so on. 
 
 Another major component seems to be concentrated in the area of pollution 
 abatement regulation. A major share of those costs are probably in a category 
 called "compliance costs," which are incurred for things like catalytic 
 converters for automobiles, stack gas scrubbers to electrical generator 
 facilities, and so on. 
 
 Another major component of costs seems to be in the area of transportation 
 regulation. I suspect that some of those cost estimates are probably over- 
 estimates but in any event, these costs seem mainly to involve some combination 
 of transfers and efficiency losses in the transportation sector. 
 
 Finally, among the other costs that account for the remaining part of costs 
 "that" have been estimated to mount up to something on the order of $75 to 
 $100 billion, most are in two general areas. Health and safety regulation is 
 a significant component, involving to some extent at least "compliance costs," 
 costs that are incurred for special equipment, special processes, and so on. 
 
 The other component arises from policies such as trade restrictions and farm 
 price support policies, which again involve some mix of transfer-type costs 
 and what I have called inefficiency losses. 
 
 MR. JASINOWSKI : That's very helpful for us, Marv. One of the questions 
 that falls out of your review is the extent to which our future focus — staying 
 on costs just a minute more — ought to be on total costs, on costs to the firm 
 or on costs associated with particular regulations. 
 
 We are fortunate to have Frank Cary here from The Business Roundtable who has 
 been overseeing a study by Arthur Andersen on the direct costs to the firm. 
 It would be useful, Frank, if you could summarize a little bit about where you 
 are in that study and the kind of progress that can be made in terms of 
 estimating costs at the firm level. 
 
12 
 
 MR . CARY ; Fine, Jerry. The Business Roundtable was very much aware of 
 the kinds of studies that are in that background paper, the studies that 
 individual firms had made like Dow and GM, and the macro studies that people 
 like Murray Weidenbaum had made. 
 
 We felt an additional area that needed to be studied was the effect of specific 
 regulations on more than one firm so we could aggregate the cost of particular 
 regulations across many firms, industries and agencies. 
 
 The purpose of our study, frankly, is to shed some light on the cost effective- 
 ness of regulations. I want to note the study was begun with the understanding 
 that much regulation is necessary, important, and stems from genuine concerns 
 and problems . 
 
 Let me spend a moment on what the study does not measure. It does not attempt 
 to collect data on all regulation and it doesn't collect most secondary effects 
 of regulation. That is, it primarily deals with direct costs of regulation on 
 firms and not many of the secondary effects like opportunity costs or the costs 
 of delay which could be, in some cases, larger than the direct costs. 
 
 It does not measure benefits, not because benefits aren't important but because 
 in business records, there is very little basis for estimating benefits and it 
 would require judgments that are really beyond the business community. 
 
 What we did was select several agencies whose regulations were particularly 
 costly to business and developed a methodology which measured incremental costs 
 for each agency's specified regulations for the year 1977. 
 
 Arthur Andersen developed the methodology for us and I think a number of people 
 in this room were consulted on it. Some of the suggestions were incorporated 
 into it. A pilot test was conducted at the General Electric Company in the 
 spring and then 48 firms, members of The Business Roundtable, agreed to parti- 
 cipate in the study. Arthur Andersen trained people from each company in the 
 methodology so that the results would be consistent. 
 
 The agencies or programs that were selected were the EPA, OSHA, Employee 
 Retirement and Income Security Act, Federal Trade Commission, Department of 
 Energy, and Equal Employment Opportunity Commission. We are at the point now 
 where a good many of the firms have completed their data collection and are 
 reporting to Arthur Andersen. I think all the data will be submitted by 
 December and we will prepare a report which will be made public in the first 
 quarter of 1979. 
 
 Many of you have received copies of a report describing the methodology that 
 Arthur Andersen developed and if you haven't, we will be glad to furnish it 
 to you. We expect that this study will not be the last study that is made on 
 regulatory costs, but it will give us an understanding of the incremental costs, 
 that is the costs over and above what the firms would have done in the absence 
 of regulation, on a cross-industry, aggregate basis. Our results will be very 
 useful in giving government agencies a good idea of what the costs of their 
 regulations are across industry lines. 
 
13 
 
 MR . J AS I NOWS KI : Frank, could you summarize the industries that will be 
 reviewed as part of the study? 
 
 MR. CARY : The 48 firms represent almost every industry. They represent 
 the utilities, the petroleum industry, the data processing industry, the steel 
 industry, the banking industry. Almost every industry is represented. 
 
 MR. JASINOWSKI : That will be useful and we may want to return to the 
 study or some of you may have comments on it. We all know that as important 
 as it is to improve our estimates of costs, it is easy to overstate those 
 costs, either because there is a net cost associated with these which has to 
 take into account the benefits and then there are problems in terms of the 
 technical means by which you do this. 
 
 I do think the movement toward gathering costs on the firm level are real 
 numbers and assuming the process is done correctly, it ought to yield us some 
 good numbers. 
 
 I wonder, Eula Bingham, if you would like to caution us with respect to moving 
 ahead in this cost area and give us some suggestions about the directions in 
 which we might go? 
 
 MS. BINGHAM : Of course, we have been talking about regulations as 
 regulations. I come from a very biased perspective and I freely admit it. 
 That is, I think that when we talk about social regulations of the type that 
 deal with safety and health, whether it is in the workplace or the ambient 
 environment, we have to be very careful that counting up the costs, and a 
 failure to talk about benefits, a failure to talk about hidden costs, deludes 
 us into thinking that we cannot afford to pay to save a life, that it just 
 costs too much. 
 
 I am not certain that the economists are prepared to deal with some of these 
 social benefits just yet. First of all, I would like to point out that 
 Mr. Costle and I and some of the other regulators deal in areas where the 
 benefits have to do with actually reducing diseases that may be associated 
 with toxic substances. 
 
 First of all, OSHA protects workers: We're not just talking about workers 
 though, we are talking about consumers also because it is a well-known fact 
 that what occurs in the plant may also occur outside the plant or be carried 
 home by workers . 
 
 I think we also have to talk about some benefits that have to do with 
 developing more efficacious and useful products. We have to talk about the 
 benefits of innovative technology. We do redesign products because they may 
 create a hazard in their present form, and frequently redesigning products 
 results in very innovative kinds of technology. 
 
 I can recall being in the academic community and listening to the debate in 
 1974 on vinyl chloride and how it was going to shut down the whole industry 
 if a standard was put into place. I believe as a result of the standard, the 
 
14 
 
 industry was actually forced to be more efficient and somehow or other, these 
 benefits are never really talked about when we do a study such as you described. 
 
 I think we have to think about institutional changes in industry and labor 
 unions and the government in general that occur as a result of some regulations. 
 The cost of not regulating is of concern to me and I don't know whether we want 
 to call that a benefit, or maybe we ought to subtract it from the cost side. 
 
 But if one does not regulate, particularly in the area that I deal with, we 
 probably are facing lower productivity as a result of not regulating. For 
 example, I think it is very clear that excessive noise leads to lower produc- 
 tivity. 
 
 There are certain kinds of job stress that obviously lead to lower productivity 
 and absenteeism. There is no doubt that the turnover rate is very great in 
 industries where there is, let's say, excessive heat; a foundry always has an 
 enormous turnover rate because of the heat stress. 
 
 Theoretically, people only stay on who can adapt. I suspect people stay on in 
 some foundries because they are poor, they are not well-trained and they need a 
 job. 
 
 Now, I think of the hidden costs there are, once again, in terms of the early 
 deaths of workers and disability of workers and perhaps even workers who are 
 highly trained by the industry and all that training is lost because the worker 
 has died. 
 
 So I think it is very difficult to quantify the benefits and I think there was 
 a meeting last week down in Virginia where this particular item was commented 
 upon. Our data base is poor; it is very difficult to estimate the benefits of 
 regulation, even those that deal with the safety and health of workers. 
 
 MR . J AS INOWS KI : Let me say that with your comments and some of the other 
 comments on costs, part of the issue we face is joined. One is a question of 
 data. We lack sufficient data on both benefits and costs, although it is more 
 difficult on the benefits side. 
 
 The other is the degree to which it is appropriate to trade off costs and 
 benefits. Economists find that easy to do, but it is not necessarily the right 
 thing to do and we would want to get comments from the rest of you with respect 
 to both of those or any other aspects of this question. 
 
 SECRETARY KREPS : I would like to stay with the benefits side just a 
 moment longer and take the liberty of asking Alice Rivlin if she wants to 
 comment on this. She did some of the early thinking on the subject of costs 
 and benefits. I wonder if you have a background statement you would like to 
 make on the difficulties that Eula Bingham has laid out, Alice? 
 
 MS. RIVLIN : I think Ms. Bingham has laid out the difficulties very well; 
 the question is, what does one do in the face of these difficulties? One does 
 not give up, one simply recognizes the fact that it is difficult to measure both 
 
15 
 
 the costs and the benefits and that, even though certain kinds of benefits 
 probably cannot be put in monetary terms, they should not be forgotten. 
 
 One of the papers, not on this subject, struck me as having a good example. 
 It was the question of whether you could compensate workers in asbestos plants 
 for the risk they run of incurring cancer. I don't think anybody could com- 
 pensate me enough to get me to undergo that risk willingly. 
 
 That is the kind of example Ms. Bingham may have had in mind. I am not sure 
 it is useful in that case to attach an exact dollar figure to the value of a 
 human life; one has to recognize that lives are at stake. On the other hand, 
 many benefits presumably can be quantified in monetary terms. 
 
 MR. JASINOWSKI : Do we have anyone else who wants to pursue either the 
 benefits question or the question of the priorities we ought to pursue with 
 respect to costs? Yes, Prof. Houthakker. 
 
 PROF . HOUTHAKKER : I would like to make two remarks on this issue of data 
 and tradeoff. In the first place as regards data, I believe that within its 
 own boundaries, the Commerce Department has very important sources of informa- 
 tion that are not being fully used as far as I can tell. 
 
 I am thinking particularly of data on individual industries and the two 
 sources I have in mind, of course, are the Census Bureau and the Bureau of 
 Economic Analysis. I believe that both of these have the potential of doing 
 much more to give solid facts on productivity by industry than has so far been 
 done . 
 
 I am aware that the Labor Department publishes some data on productivity by 
 industry but these data cover only a few industries, whereas BEA has the 
 potential to cover the entire American economy, not limited to manufacturing. 
 It's often the only source for certain industries. 
 
 I would encourage the Commerce Department to do more along those lines in 
 those two agencies. 
 
 On the question of tradeoff, this is in part a somewhat theoretical issue 
 which is nevertheless very important. There is a tendency to say that saving 
 a human life is worth almost any amount of money. It is probably true that 
 in any particular situation, the amounts of money one is willing to give up 
 to save one particular life is very, very large. 
 
 However, we have to be aware that there is often a choice of where to save 
 lives or to improve health and then the question of tradeoff does become real . 
 I would say that a tradeoff of some kind is absolutely essential to the 
 evaluation of benefits . 
 
 We cannot go around saying that certain things are so important that it is 
 demeaning or indecent to put a money figure on it. Every year, about 50,000 
 lives are lost in automobile accidents. Presumably, something could be done 
 to reduce this number. We are not doing it for various reasons, good or bad. 
 
16 
 
 However, we should not get into the position of saving a few lives in any 
 
 particular industry while not doing anything at all in another industry unless 
 
 there are clear calculations as to the relative importance for doing those 
 things. 
 
 I would say that, despite the many difficulties involved in calculating such a 
 tradeoff and despite the risk of antagonizing people who believe lives are 
 worth infinite amounts, the notion of a tradeoff should not be abandoned and 
 that calculations should be directed particularly at those. 
 
 The question of the valuation of a life is a particularly difficult one. The 
 question of health is somewhat less difficult. There, too, is a danger of 
 saying that certain actions will improve health. Well, if they do, that's 
 fine. 
 
 There are data on morbidity and the cost of hospital care and so on which are 
 very relevant to this and again, they are not always taken adequately into 
 account. My plea here is for more quantitative research using concepts that 
 may not be perfect but nevertheless are necessary to get to any degree of 
 clarity at all. 
 
 Perhaps I might make some final remark concerning what Eula Bingham has just 
 said. When she talks about foundries and the fact that they have such a high 
 turnover, I can't help but raise a question, why don't the foundries do some- 
 thing about this without regulation? What exactly are the obstacles? 
 
 Presumably, the high turnover is a cost to these foundries, too, and why does 
 the government have to intervene? I'm raising this purely as a question and 
 not as something to which I necessarily have the answer. There may be good 
 reasons why foundries don't do it themselves. Nevertheless, the possibility 
 of action by these firms in their own interests should not be overlooked. 
 
 MS. BINGHAM : I would like to say that I think that has been the push 
 behind regulations; I don't know why but I think that failure of industry to 
 act of its own volition has been the reason that we have had to have the Clean 
 Air Act, the Occupational Safety and Health Act, and the Toxic Substances 
 Control Act. 
 
 Failure to recognize the health costs and the absenteeism is apparently there. 
 Maybe there are poor economists in those industries, I don't know. 
 
 P ROF . HOUTHAKKE R : If I may reply to that, I don't think that is quite 
 the question I was asking. We all agree that in the case of pollution of the 
 environment, there may be externalities. But the example you gave of occupa- 
 tional safety and health is not a question of externalities. 
 
 You yourself said the foundries will achieve higher productivity if they are 
 more careful about the environment in which the workers operate. 
 
 MR. JASINOWSKI : Let me ask Fletcher Byrom to respond to that. I don't 
 want to put the issue of foundries on him specifically but, in general terms, 
 Fletch, you might want to respond. 
 
17 
 
 MR. BY ROM : I am not about to respond to the question of foundries. I 
 do want to try to respond to Dr. Bingham's question about why industry may not 
 have done what it should have done earlier by perceptions of appropriate social 
 concern. 
 
 I think it was Tillich who said we have to learn to become comfortable with 
 ambiguities and I think we have to recognize that we live in a society that is 
 replete with ambiguities and very often we end up in a situation where we 
 really get lost in the semantics of the situation because we have not all 
 established what we are really taking about. 
 
 Now in response to Dr. Bingham's concern, I think it is very appropriate that 
 we should recognize that for a long period of time, we felt that in a market 
 system there would be some degree of altruism on the part of economic institu- 
 tions which would produce additional value in the system that we have. 
 
 I submit to you that improving the quality of the environment, improving the 
 safety of the workplace is in fact not an economic kind of thing. It is an 
 increase in the quality of the human condition. As far as I am concerned, 
 even though I am very much a private enterprise thinker and a market oriented 
 guy, I believe there must of necessity be intervention by society when they 
 wish to establish something which improves value. 
 
 I think the market system does extremely well with economic things but the 
 things we're talking about here are not really economic. 
 
 I think one of the things that has happened here is that there was a necessity 
 for change. Our political institution is not very well adapted to the nature 
 of our society today and it is very difficult to arrive at any change through 
 consensus. 
 
 So we have had a lot of confrontation. I think that in our society change 
 probably does not occur without confrontation. I am satisfied that it was 
 necessary. My feeling is that we have it now. I believe the climate for 
 change is here and is readily acceptable. I would be the first to agree with 
 you, Doctor, that there are probably some reactionaries among my peers who 
 are not going to be all that anxious to make corrections, but I think for the 
 most part that industrial society today is attuned to the concepts you are 
 concerned with. 
 
 My problem is, how do we move from here? My biggest concern is that we are 
 here to talk about regulations. My biggest concern is the means by which we 
 choose to implement these changes in society and I do not consider regulation 
 to be one of the desirable alternatives available to us. I guess this is 
 where you and I would fall apart. 
 
 I find that those people who are concerned about what they perceive to be a 
 failure of the system in the past are too anxious to correct for it today by 
 imposing rules, methods, compliance reviews. I happen to have two favorite 
 authors on this subject, one, William Lowrance, who I think does an excellent 
 
18 
 
 piece of work in trying to get the semantics of the word "risk" out of the 
 picture and who then moves on to the question of how you determine what is an 
 acceptable risk level. 
 
 I recognize that you, Dr. Bingham, probably are in a position where you perceive 
 a representation requirement which says there is no acceptable risk, that we 
 have to move to zero risk. I think here again is a place I fall apart from you. 
 
 One other thing and then I'll stop. The other is Charlie Schultze's ideas. 
 As far as I am concerned, we need to internalize the costs of these things. I 
 think that we can in fact use economic methods to accomplish this. I just want 
 to throw out the fact that before we get too deeply embroiled in the concept of 
 how do you regulate and how do you not regulate, I would like to see how do we 
 put it into a means whereby we actually put it back on an economic incentive 
 basis. It seems to me that an alternative to regulation is a mechanism by 
 which we put it back to the point where the economics of the thing will actually 
 be the measure by which people move towards the social goals we have all agreed 
 to. 
 
 MR. JASINOWSKI ; Mark. 
 
 MR. GREEN : I would like to second the thrust of Eula Bingham's remarks. 
 The phrase "cost-benefit analysis" reminds me of "pro life," "truth in lending." 
 Taken alone, it seems irrefutable, until you examine its basis. It seems to me 
 there are two fundamental structural defects of the approach to date which 
 really make it not only ineffective but perhaps pernicious until these flaws 
 can be corrected. 
 
 Its viability turns on data. Point one is business firms largely control the 
 data about the cost of regulations imposed on them. They are obviously not 
 unbiased in this debate. Images of foxes and chicken coops come to mind. They 
 have in the past and one can expect them in the future to perhaps overstate the 
 cost of regulations since they want to be free of it. 
 
 Second, the documentation of benefits can often be ephemeral or impossible to 
 document. The generational impacts of DES in the daughters of pregnant women, 
 the cost of asbestos three decades hence is extraordinarily difficult if not 
 possible for current regulators to estimate. 
 
 The conclusion then is that as currently described, cost-benefit analysis 
 inherently overstates the costs and understates the benefits. Until that is 
 overcome, the debate will be one-sided, especially because I don't think we 
 can ignore that this approach fits in with a current fad. 
 
 I am not against fads, I tried to start some myself unsuccessfully. But the 
 current fad is that government is lousy, government can't do anything compe- 
 tently and it has some recent irrational manifestations in public policy. 
 
 We have to be careful that this Department or government is not propelled by 
 the popularity of the anti-government movement without a sound data base , 
 without an independently derived data base which is not now in place . 
 
19 
 
 One minor point, the discussion so far has been about regulation in general 
 and I would like to make a sharp distinction between what I call cartel regu- 
 lation (the ICC and the Civil Aeronautics Board, the Maritime Commission) 
 where the government substitutes for a workable marketplace by setting the 
 price, entry, or other intervention levels, and health and safety regulations 
 where the government supplements a marketplace which cannot work to protect 
 consumers because of invisible harms or externalities which a consumer cannot 
 by himself comprehend. 
 
 MR. JASINOWSKI : Thank you very much, Mark. Harrison Wellford. 
 
 MR. WELLFORD : I want to make one comment on what Mark was saying about 
 data. I think everybody agrees that the question of the adequacy of data is 
 essential to this discussion, but by focusing just on health and safety regu- 
 lation, the discussion gets a little unbalanced. 
 
 Reading through the paper prepared for this meeting, I think you have to 
 conclude that methodology in the safety and health area is in its primitive 
 stages by and large. For example, the concept of cost differs widely among 
 the studies. 
 
 Some assess primary and secondary costs, others incremental costs, direct and 
 indirect costs, and so forth. There is a different approach taken in almost 
 every study. When you add the methodological uncertainty to the fact that 
 there is very little data on benefits at all, the result is that there is not 
 very much practical guidance for policymakers in the real world. 
 
 There is an exception to all of this though and this is also revealed in part 
 by the summary paper. That is in the area of economic regulation. We have 
 just seen the successful completion of the first major deregulation initiative 
 in a very long time with the passage of the airline deregulation bill. 
 
 That bill was cooking on Capitol Hill for five years or more. I am convinced 
 that one of the reasons it finally won approval was that the economic analysis 
 of costs in this area had become mature enough for a fairly widespread con- 
 sensus to develop about the impact of the CAB regulatory apparatus on airlines 
 and passenger costs. 
 
 The work of Steve Breyer and others and the hearings by the Kennedy Committee 
 over the years has built up an enormous amount of data for people who tried to 
 make decisions about the appropriate scope of regulations in this area. I hope 
 we will be doing the same thing in the trucking area, for example, next year. 
 
 I think when we reach that point, in health and safety cost analysis, we can 
 think more productively about alternatives to regulations, and other kinds of 
 approaches such as the regulatory budget. 
 
 MR. JASINOWSKI : Let me seize on your comments, Harrison, to seek a point 
 of consensus with the group. Obviously, we have many differences. Would it 
 be the consensus of the group that economic regulations have been examined 
 well enough over a period of time and deal with questions of analysis which 
 
20 
 
 are perhaps somewhat less difficult, so that we are on firmer ground moving 
 ahead in the area of economic regulation than we are in the area of social 
 regulation? 
 
 MR. CARY : I would certainly agree with that. 
 
 MR. JASINOWSKI : Dick. 
 
 MR. LESHER : Jerry, I suggest you have two more questions where you might 
 have consensus so that we can put those things aside and move on to the places 
 where you have the debate. 
 
 First of all, I think most of us would agree that the data in all areas of 
 regulation are incomplete , whether it is economic regulation or social regula- 
 tion. Second, I think most of us would agree we can do a better job of 
 gathering that data. 
 
 It's at a very primitive state but the task is long overdue because we have 
 been making judgments and decisions in the absence of data. If we have con- 
 sensus on those things, then the next question is the one that has been raised 
 here, the debate that once you do improve you data base, are you willing to 
 make rational decisions and are you willing to come in to some consideration 
 of cost-benefit regardless of how difficult it is? 
 
 There seems to be some people arguing that that sort of rationality should not 
 be endured. They feel that we should continue to make those decisions on an 
 emotional basis rather than a rational cost-benefit tradeoff. I think that is 
 one of the central questions before you go on to those other questions of 
 alternative means of regulation. 
 
 MR. JASINOWSKI : Again, let me take the privilege of the chair to pursue 
 that question of consensus and then we will turn to Kerry Smith. Is there a 
 consensus that, even though there are difficulties with both costs and benefits, 
 we ought to put a very high priority on each and do the best we can on both 
 sides to improve that data or is there any difference of view on that? 
 
 There is some question about benefits, it's more difficult, but if you can't 
 do it in dollar terms, there are other ways to estimate it. Do we have an 
 agreement on that? Kerry. 
 
 MR. SMITH : Actually, my comment is related to this. The history of 
 benefit-cost analysis is replete with examples of moving from the intangible 
 category of benefits into the tangible category. Outdoor recreation, one near 
 to my own heart, is an example of that. 
 
 The papers we have seen here has a decided emphasis on cost and not on benefits 
 and that has come out in some of the discussion this morning. The question I 
 would like to raise is to followup on something Prof. Houthakker raised. 
 
 We have an institutional mechanism available to us for the estimation of cost, 
 be it in BEA or someplace else. It is available to us with some modification. 
 
21 
 
 My own question relates to what is the institutional mechanism available for 
 the estimation of benefits? 
 
 From what I know, and it is limited I will admit, of the regulatory agencies 
 themselves, they are involved with a very heavy burden of rulemaking activity 
 to translate from legislative mandates into specific regulations. The way in 
 which they have to proceed through that process is not entirely suitable for 
 a long-term effort in the evaluation of benefits. 
 
 One of the reasons we have a paucity of information in this area is that we 
 really don't have, in my judgment at least, an institutional mechanism 
 available for providing this information and I wonder if others agree with 
 that comment? 
 
 MR. JASINOWSKI : I see a number of heads shaking yes around the room and 
 Courtenay wanted to comment. 
 
 MS. SLATER : Just for the sake of argument, I will try saying no. I 
 don't think that lack of an institutional mechanism is necessarily a big 
 problem. It is the conceptual difficulties and the lack of theoretical 
 foundation for measuring certain types of benefits. 
 
 BEA has developed procedures for the measurement of certain types of costs, 
 particularly expenditures on pollution abatement and things of that sort. 
 That is a relatively new effort. It's been done within this decade. 
 
 So it seems to me the institutional mechanism was there for this kind of 
 measurement to be developed, and I think there is a general feeling that quite 
 a good job has been done. We do have underway some very infant efforts in BEA, 
 largely as a result of Secretary Kreps * initiative and determination to get 
 funding for these things, to try to get some handle on some of the benefits, 
 not just benefits of regulation but some of the benefits of various aspects of 
 economic activity which presently do not enter into the GNP accounts. 
 
 We also have underway some very specific efforts to measure, not the benefits 
 of regulation at this point because I don't want to oversell what we are doing, 
 but to measure the specific quantitative impacts of certain types of pollution 
 control activity; that is, the amount of physical pollutant removed per dollar 
 expenditure of certain types. This is only a first step to comprehensive 
 benefit measurement, but it is the first step you have to take before you take 
 the next step. It is also valuable information for analyzing various approaches 
 to regulation where one kind of investment can be shown to be more efficient 
 than another, and that's a valuable piece of information. 
 
 So we do have some institutional mechanisms. It will take a long time to 
 develop the kind of data on which we will make firm decisions that we can 
 measure the costs and benefits well enough to know how they balance out in 
 some areas. 
 
 MR. JASINOWSKI : It would be useful to take the question raised by Kerry 
 a step further and ask Eula Bingham her views on where she thinks, in an 
 
22 
 
 institutional sense, we might be best served for improving the estimate of 
 benefits. 
 
 It seems to me many of these regulations are highly technical and I find it 
 difficult to see how in the first instance those questions could be better 
 answered than at the agency level, but it is a question of resources, how many 
 people you've got, and also some question about how objective each agency 
 would be. 
 
 What are your views? 
 
 MS. BINGHAM : I think in the safety and health fields, it is particularly 
 difficult. We can look at the data from the National Safety Council. We, of 
 course, have institutionalized in the government the Bureau of Labor Statistics 
 which distributes a log that businesses are required to fill out that requires 
 certain types of information. 
 
 Now, it is a fact that if a worker loses a finger or a leg or suffers some 
 traumatic injury on the job, that will usually be entered on the log and will 
 come into the BLS data system. But we have really a very difficult time with 
 that because the data covers injuries over large segments of industry. 
 
 It does not select a particular type of workplace where they have a certain 
 punch press. It is not specific enough and there are difficulties with that 
 data system. But the real crunch is in the disease area. I tell you, you just 
 rarely get anyone who reports a disease on those forms. 
 
 A dermatitis is rarely, although sometimes, reported on the forms. I have yet 
 to see, and I am sure we could go there and find a few, any occupationally 
 induced cancers that has ever been reported on one of those forms. 
 
 In the first place, there is a very long latent period so where you start out 
 working and receive the exposure may not be where you are working when you 
 develop the disease. Secondly, in the case where workers do stay employed in 
 the (same) place — a good example would be the bis-chlormethyl ether episode 
 which was in a factory in Philadelphia — the hazard may still go unrecognized. 
 
 Still, those disease are just not recorded. We do have, of course, some 
 information available through workers' compensation but once again, without a 
 national system of workers' compensation, it is very difficult to get that 
 information from the states. 
 
 For political reasons, for example, the State of Ohio chooses not to give any 
 information on workers' compensation disease data. In addition to that, even 
 if we had all of those things institutionalized, we do not have a very good 
 system of workers' compensation in terms of actually admitting that a certain 
 chemical will induce a certain disease or a certain type of tumor. 
 
 For example, as recently as 1972, the State of Ohio refused workers' compensa- 
 tion to an individual who had been working with benzidene and half of that 
 individual ' s coworkers in the particular plant had developed bladder cancer 
 
23 
 
 but that individual had been off the job site for two or three years and that 
 is not considered a compensable disease in the State of Ohio. That's not at 
 all unusual. 
 
 Insurance companies do have data but apparently that is in a worse state than 
 one would care to admit. I have the impression that insurance carriers are not 
 very good when it comes to keeping the appropriate records, although certainly 
 we have developed some information from them. 
 
 I think that a wave of the future may be the increased interest among labor 
 unions to keep data on their own workers and I think the best example of what 
 this can really mean comes from the work of Seolikoff who was actually able to 
 go back and take the records from the asbestos workers and do a great deal in 
 determining the epidemiology from asbestos-induced disease of various kinds. 
 
 We do not have good data sources, I readily admit it. We could perhaps 
 encourage the Department of Health, Education, and Welfare to help us out in 
 this area. 
 
 MR . JAS INOWSKI : In addition to that, we would like very much in the 
 Department of Commerce, through Courtenay's shop and other places, to assist 
 you on benefit estimates. Allen. 
 
 MR. FERGUSON : I would like to keep on Kerry's point about institutional- 
 izing benefit information. I think it might be helpful to break down, so to 
 speak, the benefit side a little bit more into three or four categories and try 
 to determine the benefit, that is what hazard is being removed. 
 
 We need, first of all, some kind of dose response construct. We need to know 
 the impact of asbestos on people or the impact of nitrogen oxide on people. 
 Second, we need to know something about the exposure to that hazard. The first 
 is maybe a toxicological, epidemiological kind of question in many areas and 
 the second is some kind of — let me use the word loosely — demographic informa- 
 tion, who is exposed, what is their age and their other characteristics? 
 
 Those two aspects of the benefit side I think might be institutionalized in an 
 entirely different way from some of the other aspects. The first, epidemiology 
 is clearly a health problem, for example. 
 
 Then, third, there is the link between regulation or contemplated regulation 
 and the exposure. Does whatever action is undertaken, in fact, reduce the 
 health or safety hazard? That seems to me to be peculiarly the responsibility 
 of the agency in question. 
 
 I don't think there is any substantial relationship between what EPA does and 
 what OSHA does in many areas at least with regard to the effectiveness of 
 regulations. 
 
 The final category I would specify is what one might call the nature or measure- 
 ment of benefits. This gets down to such questions as, can you put a dollar 
 value on health or mortality or the risk of mortality? If you can't put a 
 
24 
 
 dollar value on it, what else can you do? This is the kind of thing that cut 
 across agencies and one of the gross inefficiencies in the present regulatory 
 policy derives from the fact that the Federal Aviation Agency seems to put an 
 entirely different value on the probability of a life saved than do some other 
 agencies. 
 
 That part, it seems to me, is analogous to the kinds of things being done 
 centrally in this Department on some of the cost questions. 
 
 MR . JAS INOWSKI : That's very, very useful, Allen Ferguson. Marvin Kosters. 
 
 MR. KOSTERS : I would like to make a couple of comments about benefits. 
 First of all, I would like to say that I think we should have better benefit 
 measurement information and I would like to say that unequivocally because of 
 what I am going to say next. 
 
 The measure of benefits, it seems to me, is a problem — a difficult problem — 
 that is not at all unique to regulation. It is pervasive for almost everything 
 that we spend resources on. I know from my experience in evaluating the 
 benefits and costs of military spending that it's much easier to measure its 
 costs, and that's true about most all federal spending programs. 
 
 I don't think that anyone would argue though, that because benefits are 
 difficult to measure, we ought not to collect budget cost information the way 
 we do both in the executive branch and in the Congressional Budget Office. 
 
 I think we need to recognize, as we address regulation, that it will remain 
 quite difficult to measure benefits. We will only have limited and incomplete 
 information on benefits, but this should not impede us from at least trying to 
 measure costs where they are incurred. 
 
 MR. JAS INOWSKI : John Meyer. 
 
 PROF. MEYER : Let me say a few things about benefit-costs. First of all, 
 is benefit-cost measurement a good idea? I did not disagree when you asked for 
 that consensus, mainly because I think it is better than what we are doing. I 
 also happen to think it is not very good for reasons I will go into. 
 
 For example, I really don't think a benefit-cost analysis finally got us some 
 deregulation of the airlines and railroads. I think it was a growing awareness 
 that the benefits of regulation in these two cases were probably near zero and 
 that the two industries were in very serious trouble. 
 
 Any regulations that obviously cost money, didn't matter how much, but were not 
 returning much of any benefits to anybody was dispensable. Politically this 
 also meant that deregulation had important industry support, in one case almost 
 unanimous and in the other case 50 percent, for the movement towards deregula- 
 tion and that surely helped. 
 
 Having said that, I would also point out that benefits can be overestimated as 
 well as underestimated. One of the easiest ways of illustrating that is to 
 
25 
 
 simply think of the fact that so often we get into regulation by someone 
 saying: "Look, there's a problem. We must do something about it." So we go 
 out and do it, implicity and strongly overestimating benefits without taking 
 the trouble to investigate. 
 
 Similarly, costs can be underestimated as well as overestimated, as for 
 example, the direct costs of economic regulation of railroads and airlines. 
 I think some important cost components have been omitted. Other components 
 may have been overestimated as Marvin suggested but a lot of the dynamic 
 costs — bad management, adverse selection of personnel, poor investment 
 decisions over time — are omitted and those can easily outweigh many of the 
 deadweight or static losses we tend to measure. 
 
 As a mere mechanical detail, the fact that you have a benefit-cost ratio 
 greater than one is not necessarily sufficient. You have to know what you are 
 excluding as well. That leads me to another suggestion. 
 
 Before we rush too wholeheartedly into a benefit-cost approach, perhaps we 
 ought to think about one of the well-known alternatives which is cost effec- 
 tiveness. I am not necessarily recommending this but it has at least as many 
 merits and is worthy of consideration before we say we want a benefit-cost 
 approach . 
 
 I'm worried that in a benefit-cost approach we would say the ratio is greater 
 than unity and therefore it's good. But that does not take the budget problem 
 into account. In the cost effectiveness alternative, you try to define a 
 mission — you want to save so many lives or keep people out of hospitals for so 
 many months or some other goal — and then try to find the lowest cost way of 
 achieving that. That might really be more efficient and more effective and 
 more amenable to data capabilities. 
 
 MR. JASINOWSKI : Again, that is a very helpful set of comments. We will 
 break in a few minutes and have some coffee and then come back. Let me just 
 risk my luck and raise one other potential area of consensus. 
 
 Assuming that we improve the data as best we can, both in terms of benefits 
 and costs, and assuming we make the modification that John Meyer has suggested 
 (that we look at cost-effectiveness analysis as a way to evaluate some of the 
 decisions we face in the regulatory area) , I think there is some greater 
 consensus from the business side and the regulator side and others. Eula 
 Bingham, would you comment on what degree of consensus you see us having in 
 this area? As you get into noise and a number of other important regulations, 
 there has to be some consideration of both sides of this. Or do you take the 
 position which is that there's just no middle ground? 
 
 MS. BINGHAM : I don't know why, I guess I am the extremist in this group. 
 I think that's very difficult. We could collect benefits so that we can 
 demonstrate to the world that what we want to do is worthwhile. Those trade- 
 offs, I have difficulty with some bureaucrats making the tradeoff with the 
 worker out there who does not understand, and it is usually a very poor worker, 
 frequently a black or Hispanic, who cannot understand the tradeoffs you are 
 making . 
 
26 
 
 There is difficulty with some of these tradeoffs — for a just society, a 
 civilized Nation, and in this Administration for us tempting to make those 
 tradeoffs. I am willing to delineate the benefits. I would agree that it 
 is very important to talk about cost-effective means of achieving a regulation. 
 
 My own point of view is that, within certain limits, one does let an industry, 
 for example, decide how to achieve a level of protection, to save so many lives 
 or solve the problem. I think one has to be somewhat careful of that because, 
 while it is very easy for a major corporation to come up with that innovative 
 way of doing the job, it's very difficult for a small business person in this 
 country to do it . 
 
 I do come from the Labor Department and if you look at the figures, you will 
 find that most of the jobs are coming from small business these days. So I 
 have some ambivalence about the way you let people decide on doing things and 
 I can tell you in our hearings, it is interesting that sometimes a small 
 business person would like for you to say, "How do you want me to achieve this, 
 don't just put me out there on my own?" 
 
 MR. JASINOWSKI : Fletcher. 
 
 MR . B YROM : I think you just touched on a very important point. That we 
 should recognize that one of the ambiguities I spoke of is that as we perceive 
 the need for improving the quality of the human condition in this way, we move 
 to the point where the cost of accomplishing it requires a concentration of 
 scale in order to make it affordable. That is contrary to the instincts of 
 some of the other agencies in the government. One of the things that is 
 forcing a move towards concentration in many industries is the very action in 
 the OSHA regulations and the EPA regulations. 
 
 I am not arguing the question one way or the other, I am saying it is one more 
 of the ambiguities. 
 
 MR . JAS I NOWS KI : It has been a very productive first hour. Madam 
 Secretary, did you want to make any summary comments before we take a ten 
 minute break for coffee? 
 
 SECRETARY KREPS ; It's just that we are stuck with the question of trade- 
 offs willy-nilly. Given a society in which resources are limited, tradeoffs 
 will be made. Someone will decide which life to save, if you will. Being 
 disturbed by having that decision made by the bureaucracy is again disturbing 
 to all of us. 
 
 We have to recognize, however, that the tradeoffs will occur. What we are 
 discussing here is finding the most equitable way to achieve these tradeoffs, 
 in the most democratic way and within our limited resources. 
 
 MR. JASINOWSKI : Thank you very much. Coffee will be served. 
 
 (Whereupon, a break was taken.) 
 
27 
 
 MR. JASINOWSKI ; Toby Clark has joined us from EPA. Barbara Blum will 
 not be able to join us. And we have Tom Hopkins from the Council on Wage and 
 Price Stability and we are hopeful that Charlie Schultze will join us very 
 shortly. 
 
 The second item on the agenda is the area of improved regulatory management. 
 We have a chart in the front of the room and you each have a copy . 
 
 There has been a large number of suggestions on how to improve the regulatory 
 system as a whole given its alleged or real impacts. We began to get into that 
 in the last hour with discussions of improved cost-benefit analysis and very 
 importantly, John Meyer's point that we look for cost-effectiveness analysis 
 which in many cases is a much more practical way to address these questions. 
 
 The chart should be viewed as a menu of alternatives. Again, we are not 
 suggesting that a particular action is an answer. Many of them relate as a 
 system and what we would like to do now is to focus on ways in which we can 
 improve the system. 
 
 Let me just suggest, as you look at these recommendations, that there are 
 three broad thrusts that we should consider focusing on. Expanding the Presi- 
 dent's Executive Order, applying it to independent regulatory agencies and 
 streamlining the regulatory process all address primarily improvement of the 
 management of regulations at the agency level. 
 
 The President's Executive Order is an effort to improve the control of each 
 agency head over the regulations the agency promulgates. Secondly, strength- 
 ening the Regulatory Analysis Review Group chaired by the Council of Economic 
 Advisers and/or establishing a regulatory ombudsman which would be an alterna- 
 tive way to provide some central oversight. 
 
 This might be done at the Office of Management and Budget, it could be done 
 elsewhere in the Executive Office of the President. These suggestions go to 
 the merits of providing some central oversight for the review and implementa- 
 tion of regulations. 
 
 Finally, a third thrust goes to what you might call a regulatory agenda or 
 regulatory calendar. Even the regulatory budget and sunset review all go to 
 the question of central oversight in a more formal, institutionalized basis, 
 be it either in the Congress, in OMB or through other mechanisms. 
 
 So you can really look at this menu of alternatives in terms of three central 
 focuses for improving the management of regulations. The question we are 
 faced with is the degree to which there is a balance between agency control 
 and a more central control and to the extent you do that, what then are the 
 mechanisms for each? 
 
 With those broad introductory comments, the discussion is open. We would be 
 happy for any of you to pick up on this part of the discussion. 
 
 Let me ask you to get it going, Harrison, by reviewing a little bit about the 
 President's Executive Order which is not as well-known and understood as it 
 
28 
 
 CHART 2 
 
 POSSIBLE ACTIONS TO IMPROVE THE REGULATORY SYSTEM 
 
 • EXPAND THE EXECUTIVE ORDER, "IMPROVING GOVERNMENT 
 REGULATIONS" 
 
 • APPLY THE EXECUTIVE ORDER TO INDEPENDENT REGULATORY 
 AGENCIES 
 
 • INCREASE THE ROLE OF THE REGULATORY ANALYSIS REVIEW 
 GROUP 
 
 • IMPROVE IMPACT AND COST/EENEFIT ANALYSES 
 
 • STREAMLINE THE REGULATORY PROCESS 
 
 • ELIMINATE INEFFICIENT REGULATIONS 
 
 • SUNSET - ABOLISH UNNECESSARY REGULATIONS 
 
 • ESTABLISH AN OMBUDSMAN FOR REGULATORY ANALYSIS 
 
 • REGULATORY CALENDAR - ZERO-BASED BUDGET RANKING OF 
 REGULATIONS 
 
 • REGULATORY BUDGET 
 
29 
 
 ought to be and is one way by which we try to improve the management of 
 regulations at the agency level. 
 
 MR. WELLFORD : Well, the Executive Order on regulatory management was 
 promulgated in the spring of 1978 and is just now being fully implemented. 
 Let me go over its main points. 
 
 It has three purposes. The first purpose is to increase the agency heads' 
 accountability and participation in the development of regulations and to 
 improve the knowledge in the Executive Office and hopefully, the President 
 about the aggregate impacts of regulation on the private sector. 
 
 The second purpose is to improve the cost analysis that is done in the 
 agencies and the third is to require a systematic review of existing regula- 
 tions so that the agencies will come forward with suggestions on how 
 ineffective or outmoded regulations might be eliminated. 
 
 Within those three general goals, let me provide some details. Under the 
 first, accountability and information to the Executive Office and the President, 
 the Executive Office requires an agenda of upcoming regulations to be developed 
 by each of the executive regulatory agencies. 
 
 This agenda comes into OMB and 0MB then makes use of it with CEA in developing 
 policy advice for the President. The agenda also serves the purpose of 
 alerting regulatory agency heads to what is going on within their own agency 
 and the need for coordination with other regulatory agencies. 
 
 The agency is also required to develop internal work plans to be sure that 
 there is effective public participation in the development of regulatory 
 decisions, to reduce regulatory overlap and duplication and to improve the 
 clarity of regulations as they are written and presented to the public. 
 
 The last point I would make is that the Executive Order requires that a regu- 
 latory analysis of major regulations be rigorously developed to be sure that 
 all feasible alternatives to a particular regulatory approach have been 
 considered. 
 
 That is the general objective of the Executive Order and as I said, I should 
 caution you that it really is just in place and we have not yet had time to 
 see how useful it is going to be. 
 
 MR. JASINOWSKI : As I indicated in my opening remarks, the way in which 
 we can move in terms of improved management is at the agency level or in a 
 more centralized form. One of the suggestions that has been made, which in 
 part has been widely discussed in the last several days in the press, is the 
 idea of expanding the requirements of the Executive Order to the independent 
 regulatory agencies. Let us address this proposal. 
 
 I wonder, Eula Bingham, if you would give us your wise counsel on expanding 
 the Executive Order beyond where it is right now? 
 
30 
 
 MS. BINGHAM : Oh, I thought you were going to ask me another question. 
 Well, I am in the throes of trying to make some arguments about that. I 
 personally feel that the Executive Order as it stands now, if it is adhered 
 to, if it is taken seriously by those of us who are regulators, can accomplish 
 a great deal. 
 
 I do not think we have had an opportunity to see how well it works. Perhaps 
 in our thrashing around to do something about inflation, we are seizing upon 
 doing something more with the Executive Order just because we don't know what 
 else to do. 
 
 Let me tell you that I took it seriously before it ever happened. We, a year 
 ago, put a proposal on the streets to eliminate a number of standards, which 
 is an unheard of thing and we quit enforcing those standards, issuing de 
 minimis citations. 
 
 We are in the last agonizing days of finalizing the final regulations to 
 
 eliminate the standards where attorneys are arguing over whether it is "shall" 
 
 or "should" — you know how that is. It is every bit as difficult to eliminate 
 regulations as it is to promulgate . 
 
 Perhaps it is even more difficult because people do have pride of authorship 
 in these. We are making an attempt. Another thing is to consolidate and 
 coordinate regulations that are on the books. We are verticalizing, for 
 example, construction standards so that the construction industry will know 
 what is required of it from the construction list and the general industry 
 list of standards. 
 
 I think this is a worthwhile kind of activity. The other thing we did was 
 eliminate paperwork and have reduced, I think, considerably the paperwork 
 burden. I was shocked by the dollar amount the Paperwork Commission put on 
 what we did, which seemed to be a relatively simple thing. 
 
 We have actually reduced the reporting burden on those establishments which 
 have ten or fewer employees. We have also taken four pieces of paper and 
 consolidated them into a couple of pieces of paper. I think it does not take 
 very much imagination to do that sort of thing. 
 
 I guess I would say that it is possible to do some of the things in the 
 Executive Order if we try to be open-minded and set our mind to do it. It is 
 very difficult though. There are a lot of interests out there. In the whole 
 area of dropping regulations, you might think that the dissent were to come 
 from perhaps the labor unions but we had some comments to deal with from 
 industries, from old line safety managers perhaps who had helped put those in 
 place originally. 
 
 There are many interests that you do have to deal with and I guess I would 
 like to see what we can do with what we have available before we rush on 
 because I think our motives in rushing on will be" misinterpreted and perhaps 
 the motivations of this Administration will be misinterpreted. 
 
31 
 
 MR. JASINOWSKI : That's very helpful, Eula. We are fortunate to have 
 Charlie Schultze join us in the last few minutes. Mr. Schultze has done a 
 great deal of work in the regulatory area prior to his becoming Chairman of 
 the Council of Economic Advisers. 
 
 Our discussion, Charlie, has been in terms of the different thrusts that one 
 might take at the agency level, at a central level, or in other ways to improve 
 the management of the regulatory system. I wonder if you wanted to make some 
 general comments on the principles or thrusts that you think are important for 
 us to consider? 
 
 MR. SCHULTZE : That's a tall order. I am not sure how prepared I am to 
 follow it. There are really two different sorts of things involved and one 
 does not preclude the other. One is the line to which the Executive Order is 
 directed — to improve and to broaden the analysis and discussion of particular 
 regulations. This has been facilitated, for example, by the regulatory 
 analysis program which is an attempt in an organized way to work cooperatively 
 with the regulatory agencies on the one hand and on the other to centralize 
 analysis with the help of the economic agencies like CEA, CWPS, and OMB. The 
 program is designed to increase the dialogue over time between the various 
 regulatory actors and to do what all of us want — improve our economic analytic 
 capability and the economic content of the regulatory process . The Executive 
 Order's agenda requirement supports this effort and promotes coordination among 
 individual agencies by providing advanced knowledge of what is about to be done. 
 
 There are a whole host of things which can be done. There is a major addi- 
 tional set of issues to which I don't have any ready answers but should never- 
 theless be discussed. The issues revolve around the relative roles of the 
 dependent regulatory agencies on the one hand and the Executive Office of the 
 President on the other. 
 
 There is no question but that the whole thrust of congressional legislation 
 and establishment of regulatory agencies puts them in a position somewhat 
 different from other executive agencies when it comes to making policy deter- 
 minations. 
 
 There is a major legal, philosophical and other argument, however, over what 
 one means by "somewhat?" At one pole, there is the view that regulatory 
 agencies are generally faced with fairly specific statutes which in some sense 
 direct ones outcome. Under this view, though the public is involved during 
 the comment period, it is a technical job to get from the statute to the 
 regulation. That's one view of how one interprets somewhat. 
 
 The other view is that there are major policy issues involved in the inter- 
 pretations that flow from the statute to regulations, that these policy 
 issues have major economic and social impacts, and that regulation is more 
 than a technical exercise. On this view, the regulatory process is analogous 
 to other executive functions and is therefore a part of the President's and 
 the Administration's overall program. 
 
 I think it is obvious to those of us, both in the Executive Office and the 
 regulatory agencies that this is an area of discussion and disagreement which 
 
32 
 
 has not been settled and which at the present time is open both on legal, 
 policy, philosophical and other grounds. 
 
 At this stage, I am not prepared to lay out what I might believe my own 
 particular view of it is. But I think it is clear that it is quite impor- 
 tant as to how this develops over the years — both in terms of administrative 
 practice and probably ultimately congressional legislation. 
 
 MR. JASINOWSKI : Thank you very much, Charlie. Prof. Houthakker. 
 
 PROF. HOUTHAKKER : I would like to point out that the question of 
 emphasis on the agency versus emphasis on the centralized parts of the 
 bureaucracy is really a personnel problem. The answer depends primarily on 
 what kinds of people are actually in charge of regulation, whether an inde- 
 pendent or executive branch agency. 
 
 Ideally, the President should be able to appoint people to regulatory 
 agencies who will fulfill his legislative goals without the need for detailed 
 supervision by centralized offices. In actual fact, although the President 
 may want to do so, his ability to do so is severely circumscribed by Congress 
 in particular, and possibly also by other political considerations. 
 
 Now, if presidents put more weight on the careful selection of regulators, 
 then I think the issue will not be as severe as it otherwise is. This, 
 however, does run into another problem, namely that the independent regula- 
 tory agencies in particular do have a tradition of continuity. 
 
 They are not meant to reflect just one particular president but generally 
 speaking, terms overlap different administrations. I believe that Congress 
 is to some extent at fault in this process in that the regulatory agencies, 
 particularly the independent ones, are still viewed as a way of graceful 
 retirement for staff members who for one reason or another, say the defeat 
 of their congressmen, need a well-paying job somewhere. 
 
 I think if this particular management personnel problem could be overcome, 
 then the management problem would be also much easier. 
 
 MR. JASINOWSKI : John Meyer. 
 
 PROF. MEYER : Henk, it is more than a personnel problem. It is clear 
 that very often the mandates given to the various agencies lead them to a 
 particular perspective, usually a fairly narrow one that can conflict with 
 larger goals. The regulators may have no real way of knowing even if you 
 can have very able people sometimes. 
 
 The foreign policy problem on civil aviation is one of the most glaring 
 examples. An inflation role in so many of the safety and environmental 
 issues is another example. I think it's a lot more than personnel, although 
 I think that better people would help a lot. 
 
33 
 
 MS. BINGHAM : May I make a comment about this, just an observation. I 
 am sure it is the same in the Environmental Protection Act, but in the 
 Occupational Safety and Health Act, three things are literally mandated. 
 
 First of all, that regulations be developed; secondly, that enforcement of 
 these regulations occur; and thirdly, that employers -employees be informed of 
 hazards in the workplace. If you go out to the field and talk about us being 
 a regulatory agency, our field personnel would say, "oh, yeah, we think we are 
 an enforcement agency." 
 
 What you are talking about is politicizing these agencies and of course, they 
 are politicized because we are political appointees. But I would bring to 
 your attention something that happened in the previous administration, how 
 political these things can be and how one does tend to want to be somewhat 
 withdrawn from it. 
 
 I will give you an example. There was a memo written by the then Assistant 
 Secretary of Labor to a committee that had as its mission the reelection of 
 the President and said what can we do to help, how can we not enforce this or 
 not issue that regulation? 
 
 That is a difficult situation. I throw it out there because it has occurred 
 and it's a difficult one to deal with. 
 
 MR. JASINOWSKI : Charlie. 
 
 MR. SCHULTZE : One comment. I have no direct knowledge of this but I 
 suspect to the extent such a regulation was written, a letter was also written 
 to the regulatory agency. 
 
 MS. BINGHAM : It's a letter that came out during Watergate. 
 
 MR. SCHULTZE : My point is that it is a danger, it is a problem. But 
 the fact that the politicizing of a regulatory agency can occur seems to be 
 not an argument per se. There may be many other legitimate arguments for its 
 relationship to the Executive Office and the Presidency. 
 
 The same sorts of things occur presumably and have occurred in other agencies 
 where I don't think you would use that as an argument. 
 
 MS. BINGHAM : That does not make it fair and equitable to the industries 
 that are being regulated, does it, or to the workers who are not being pro- 
 tected or consumers? 
 
 MR. JASINOWSKI : Allen Ferguson. 
 
 MR. FERGUSON : I would like to make comments on two main points. One, 
 drawing from the paper on alternatives, one of the interesting conclusions 
 in there, although it is not emphasized, is that in order to reduce the 
 private or economic costs of regulation, it is necessary to increase the 
 government costs of regulation. 
 
34 
 
 There is a great deal of emphasis put in the paper on the proposition that 
 the introduction of incentives or mixed strategies places a much heavier 
 burden on the government than the use of what are considered there to be 
 cruder and more costly across-the-board standards. 
 
 I think this is a difficult tradeoff that sort of runs across the grain as 
 far as the ideological lineup of people on various sides. This paper suggests 
 that more efficient regulation is achievable only at the expense of much more 
 elaborate bureaucracy. 
 
 The second thing is that in terms of improving regulation within its present 
 structure , I would urge very strongly that a key problem is the bias in 
 information with which the regulators are presented. The industry typically 
 does control the bulk of the data, even the benefit data in lots of cases. 
 
 We had occasion to work in a very small way with the National Highway Traffic 
 Safety Administration on automotive fuel efficiency requirements. The data 
 submitted by the industry were just abominable. In order to get the costs 
 that they were predicting, one had to assume a price elasticity of demand of 
 something like three for automobiles . 
 
 So any major reform in the regulatory process within the present broad frame- 
 work of regulations in my judgment has to include a systematic way of getting 
 unbiased information into the process. Also, I think that we cannot define 
 "unbiased" so that information provided by the staff proposing the regulation 
 is automatically considered to be unbiased. 
 
 That is clearly better than industry information but, after all, there is 
 pride of authorship. 
 
 MR. JASINOWSKI : Let me suggest that the problem of data from the indus- 
 try is a problem that goes beyond that faced by particular agencies to all the 
 agencies of government. It is a technical problem in the first sense and then 
 there are biases that inevitably creep into institutional arrangements. 
 
 It would seem for that reason that efforts to improve the analysis at the 
 agency level would have to be balanced by efforts in the private sector and in 
 some central office, be it the Regulatory Analysis Review Group or through a 
 regulatory ombudsman in OMB, in order to have a balance between these various 
 sources of data. This leads to the conclusion that we really ought not debate 
 about one or the other but accept the existence of both. 
 
 I wonder if there is a consensus that we really need both, some central 
 approach and some agency approach to improve the analysis of these regulatory 
 decisions? I wonder, Toby, if you might want to comment on that? 
 
 MR. CLARK : Thank you. I would like to first to agree with Allen 
 Ferguson when he commented on the cost of doing these analyses. One of the 
 big problems we face is in getting sufficient resources within the agencies 
 to do the type of analysis that EPA certainly wants to do and is required to 
 do by the Executive Order. I have been puzzled for several years by the 
 
35 
 
 existing budget process which tries to minimize federal expenditures, because 
 in many ways this conflicts with the goals of implementing better regulatory 
 processes. 
 
 As a second point, I would like to comment on something Eula said. She 
 expressed concern about politicization of the regulators. Were I she, I would 
 be perhaps even more concerned with the possibility that this process would 
 end up with me in jail. After all, the flexibility that the regulatory 
 agencies have is severely limited by the initial legislation and by how the 
 courts interpret that legislation. The courts certainly have had a major role 
 in determining EPA's actions, and I think this has to be taken into account 
 when you start talking about centralized regulatory processes and review 
 processes. 
 
 A third concern I have with the appropriate balance between the individual 
 agencies and a centralized control relates again to budgetary issues. Good 
 regulatory analysis requires a thorough insight and knowledge of the indus- 
 tries being regulated and of the problems they face. Presumably the indus- 
 tries themselves already have this information. The question is (and I don't 
 really know the answer) whether you are going to duplicate all this knowledge, 
 perhaps in cases try to exceed the knowledge the industry has about itself, 
 within the regulatory agencies. 
 
 The more information we have, the better job we can do, and we have to know 
 incredibly detailed information about these industries in order to do good 
 regulatory analyses. If you then talk about having a central regulatory 
 group which will review what the agencies do, it sounds as if you are talking 
 about duplicating that knowledge a third time, and I am not sure that this is 
 either possible or desirable. I am, however, sure that it is expensive. 
 
 MR . JAS INOWS KI : Toby, I think those are very helpful comments. Harrison 
 Wellford is here and I notice he is taking notes with respect to the budget 
 resource question so that's very useful. 
 
 MR. SCHULTZE : He can't afford anymore resources under their guidelines. 
 
 (Laughter. ) 
 
 MR . JAS INOWSKI : Harrison, I wonder if you might comment on the question 
 of central versus agency analysis and the way in which we should try to find 
 a balance or not to do so, if that's the consensus of the group? 
 
 MR. WELLFORD ; In part, it is a resource question. The amount of techni- 
 cal expertise — specific industry expertise, engineering and medical science 
 expertise, etc. — necessary to really get into the substance of many of these 
 regulations cannot be easily met by the resources we presently have in the 
 Executive Office. 
 
 In fact, to allow for major substantive review of individual regulations you 
 would have to change the present concept of the Executive Office as it has 
 been defined at least in this Administration. But I think lack of resources 
 
36 
 
 is only part of the problem. The absence of reliable and uniform methodology 
 for risk and cost analysis is more important. 
 
 If the methodology were more uniform, the review task would be considerably 
 easier. We have to consider both these problems in trying to assess whether 
 or not the Executive Office role in reviewing regulation should be expanded 
 or altered. 
 
 MR. JASINOWSKI : Let me ask, Charlie, if you want to tell us anything 
 about the future activity of the Regulatory Analysis Review Group, not in terms 
 of specific cases necessarily, but its continued role in reviewing these 
 questions and if you feel that perhaps that ought to be altered over the longer 
 run toward a different institutional mechanism? 
 
 MR. SCHULTZE : The second question I can't answer. The attempt to combine 
 analysis with discussion among the several agencies has only been underway for 
 a short period of time. The number of regulations on which formal reviews have 
 been completed under this arrangement is so small that it is very difficult to 
 make a judgment. I think you can be sure that anything like this which is new 
 will not stay the same way. It would be premature, therefore, to say that we 
 know enough now that we want to change it in a particular direction. There is 
 plenty of work ahead just with the existing program as we begin to look at the 
 regulatory calendars over the next six to 12 months. 
 
 MR. JASINOWSKI : Mark Green was trying to make a point. 
 
 MR. GREEN : On the point of whether there is consensus for some kind of 
 centralized oversight, I would like to mildly register dissent, given the 
 current state of the art and the politics. Right now, the to-be -regulated 
 business community has three cracks at influencing regulation. Initially, 
 they appear in Congress when the mandating statute is discussed and enacted. 
 Industry makes its viewpoint well-known. 
 
 The second is during formal hearings at agencies where they have fleets of 
 economists and lawyers make their case over extended periods of time on the 
 merits. 
 
 The third is at the court stage. One aphorism has it that when an agency 
 issues standards, the Japanese hire engineers and Detroit hires lawyers. 
 
 We are talking now about a fourth stage, a "new layer of bureaucracy" as 
 applied to consumer offices. 
 
 I am troubled with the regulatory budget concept as I read about it in the 
 Secretary's business article in the paper here for reasons that have been 
 alluded to. 
 
 Given the state of data today, it would not work. It would be so inherently 
 biased because the people who control the data have a heavy self-interest to 
 shape the data, if not to not disclose the data. In one of the papers 
 distributed today, there was an estimate that passenger constraints called 
 
37 
 
 airbags would impose a $300 to $400 cost on consumers. That's the automobile 
 industry data. 
 
 The Department of Transportation data was in the low hundreds of dollars, 
 like $110. You would think that Commerce would have respect for a sister 
 agency like the Department of Transportation, and use their figure. 
 
 Second, on access, while one would want everyone who is here to stay here, 
 but where is the labor representative who has a lot of interest on the issues 
 raised today? Eula Bingham cannot speak on behalf of her agency and the 
 broader labor community. 
 
 Third, who are the people who would be making this judgment and to whom are 
 they emotionally and politically responsible? The Secretary of the Treasury, 
 Ambassador Strauss, the Secretary of Commerce? Look at their calendars of 
 meetings. Also, part of their motivation is what Business Week or The Wall 
 Street Journal says . 
 
 I think there is a political link between the business community's complaints 
 about government and its ability to shape this fourth level of review which I 
 think raises serious problems. 
 
 This Department began by examining the social audit of corporations and today 
 we have somehow evolved into a social audit of government. 
 
 MR . JAS INOWSKI : Mark, those comments on the budget and Congress are both 
 useful and we want to turn to the political and technical questions associated 
 with the budget in just a moment. 
 
 We are fortunate to have Bill Nordhaus from the CEA join us. I wanted to take 
 Mark's comments one step further though because they are related to a number of 
 other points made by John Meyer and others. 
 
 There is the overall question of the congressional role in this process. I 
 think you mentioned oversight, Mark. In addition, there are a number of 
 proposals for sunset provisions or other kinds of analysis on the Hill. 
 
 I wondered if people wanted to carry the discussion about the major role of 
 Congress in this area a step further? C. L. Haslam. 
 
 MR. HASLAM : Jerry, it's fair to say that Congress has addressed many 
 of the questions we're looking at today. There are any number of bills 
 pending, and a few passed in this session, which deal with the issues raised 
 today . 
 
 The basic common threads which run through these are that they talk about 
 cost-benefit analysis, mandating regulatory reviews associated with regula- 
 tion, and the need for efficiency. A number of the proposed bills would 
 substantially increase congressional review and oversight, and include 
 "sunset laws." We will probably get to these this afternoon. 
 
38 
 
 There is some emphasis on increased economic impact analysis and public par- 
 ticipation, the whole potpourri, of what we're looking at. The Administration 
 generally has been receptive, but has yet to propose legislation that would 
 deal with the problems that we have addressed: technical feasibility; the 
 question of practicability of administration and separation of the powers, and 
 congressional veto. 
 
 I think that the common thread of issues that have been raised indicates that 
 we may well be reaching some maturity of the issues, in terms of public discus- 
 sion. Regarding the American Bar Association, Jerry, its Committee on Law and 
 the Economy has looked at a number of these questions. Regarding one of the 
 questions which we've discussed, after their analysis they came down clearly in 
 favor of substantially enhanced Presidential authority. There is a view that 
 the regulatory process is literally beyond control, incapable of being molded 
 towards any consistent public policy. 
 
 The ABA Committee strongly favors increased Presidential authority, even to 
 the point of modifying or suspending regulations from independent regulatory 
 agencies, after some review. They fully recognize, as do most people, that 
 when you deal with changes in the structure of the regulatory process, such as 
 these, congressional action is clearly required. 
 
 MR . JAS INOWSKI : Are there any other comments to pursue that line of 
 inquiry? I recognize that at least in the case of the President's authority, 
 it is a legal question and that none of us can answer that question in any 
 legal sense. 
 
 Dick, did you want to make any further comments on the role of Congress in this? 
 
 MR. LESHER : I guess I have difficulty being too confused over it. I think 
 the laws are fairly clear and I do think the executive does have responsibility 
 for carrying out the mandates passed by Congress, either in the straight-line 
 agencies or regulatory agencies. 
 
 We are really talking about improving the process and we're talking about 
 management efficiency. It is very clear that the executive does have responsi- 
 bility for those two things. We are not talking about changing the regulations 
 at the executive side, that is done basically by the Congress. 
 
 Many of these regulations and many of these agencies and departments have been 
 hastily put into place. A lot of error has been made along the way and I think 
 there is a meeting of the minds that we should get on with cleaning up the act 
 the best we can without quarreling too much over the basic long-term 
 objectives. 
 
 MR. J AS INOWSKI : Kerry Smith. 
 
 MR. SMITH : It may be important to distinguish between existing legisla- 
 tive mandates and proposed new regulations. As I read the regulatory budget 
 proposal, it was directed in large part to new regulations rather than impos- 
 ing upon regulatory administrators some possibility of violating the law. 
 
39 
 
 It seems to me we want to distinguish two possible roles that budget might 
 play. There is an increasing recognition it seems to me in the construction 
 of regulatory measures that, aside from micro efficiency and equity considera- 
 tions, we also have to think about macro efficiency considerations. 
 
 Somehow the package of regulations or any single regulation itself may inter- 
 fere with stabilization policy or the broader goals of a given administration. 
 Here again, just as at the micro level, we have tradeoffs that must be 
 recognized. 
 
 The question I want to raise is: Is the regulatory budget intended to expose 
 the nature of these tradeoffs for public debate and review, or is it to be an 
 instrument of quite important centralized control? If it is an instrument of 
 centralized control, then we have to think carefully about the interaction of 
 who gets involved in that control. 
 
 MR. JASINOWSKI : That's a very good introduction into a more detailed 
 discussion on the regulatory budget. Just to lay out the Department of 
 Commerce's position on it, it is something we have been working on and which 
 we are anxious to advance . 
 
 We see it as a reasonably long-term proposition, although we see steps all 
 along the way which will move us in that direction. We are optimistic but 
 realistic about the kinds of data and other problems that are involved and 
 we would be happy, after some discussion, to indicate a little more about 
 the next steps we see in that process. 
 
 I would like to ask Lucy Falcone from the Department of Commerce to summarize 
 briefly the paper on the regulatory budget so that we can move on with addi- 
 tional discussion on that, as well as the regulatory agenda and other central, 
 formal means for management of regulations. Lucy. 
 
 MS . FALCONE : Let me start by saying we saw two needs in the regulatory 
 area — the need for an overview which doesn't currently exist and the need for 
 better management of the regulatory process. 
 
 We focused on the regulatory budget although, as Jerry indicated, it is still 
 in an embryonic stage. We are now at the point where we are trying to answer 
 the conceptual questions that one faces in trying to set up a regulatory 
 budget. 
 
 In terms of how the budget might be used, there is a whole range of possibili- 
 ties. One alternative is to develop a budget as a listing of regulations and 
 their costs. This is essentially what was done by Stanley Surrey in the early 
 '60*s when he developed the tax expenditure budget. 
 
 That tax expenditure budget is now published as a special analysis in the 
 federal government's annual budget. A listing of regulations and their costs 
 in and of itself would, as I think the tax expenditure budget has done, stimu- 
 late the study of benefits and how to deliver benefits in a cost effective way, 
 
40 
 
 Alternatively, we could use the budget in a way very similar to the federal 
 budget where each year government would set cost ceilings on new regulations 
 and within that cost ceiling, make priority choices. For example, the 
 President may set a ceiling of $535 billion for next year's budget and within 
 that, we will trade off defense against social security benefits. 
 
 However, our position at the Commerce Department is that we don't yet know 
 enough about the regulatory budget to settle on its ultimate use, but I think 
 it goes all through the range that I mentioned. 
 
 There are a number of questions we think still need to be answered. First, 
 how would cost information be obtained? One suggestion made in the paper is 
 the use of new accounting measures, new 10K forms that are submitted to the 
 SEC. 
 
 We frankly are concerned about this approach because computation of the budget 
 might cost more than the private sector would save in terms of cutting regula- 
 tory costs. Secondly, it would also raise the questions which Mark Green and 
 others have raised about who controls the estimation of costs? 
 
 We would prefer to see more work done in terms of macro models that could 
 estimate costs without imposing a very great reporting burden on either govern- 
 ment agencies or directly on industry and individuals. 
 
 Alternatively, government could conduct surveys or censuses similar to The 
 Business Roundtable study. Again, I think we will have to face at some point 
 the question of how much additional direct cost the government will be willing 
 to bear to obtain what would be less biased information on costs. 
 
 Second is the question of the scope of the budget. The budget can include 
 direct costs to the regulatory agency, which I think we would all agree upon. 
 It can also include other costs to the government as a whole. Let me give you 
 one example . 
 
 In order to implement some water quality regulations, there might be a need 
 for some of our grant-making agencies to make money available to communities. 
 So an agency like the Economic Development Administration or another agency 
 might divert funds that would otherwise be spent to build libraries, to improve 
 sewer systems. That's just an example. 
 
 The question is, should those kinds of costs be included? The third kind of 
 cost is the direct cost to the private sector. I don't think there is any need 
 to go into those further. 
 
 Beyond that, there is the question of indirect or opportunity costs. Costs in 
 terms of reduced productivity, costs in terms of a slowdown in technology 
 improvement or the acceleration of technology improvement. Our inclination 
 would be to start modestly at first. We would like to take the direct costs 
 of the regulatory agency and the direct costs to the private sector into account 
 and perhaps leave for later the indirect costs to government, that is, costs 
 borne by other government agencies and the indirect or opportunity costs in the 
 private sector. 
 
41 
 
 The third question is should the budget account directly for benefits? Our 
 preliminary view on this, although we are open to suggestions, is that like 
 other budgets, benefits should not be quantified directly. However, they are 
 the raison d'etre for conducting the budget in the first place. 
 
 When we compute the federal budget, we presume the benefits of national 
 defense spending, we don't try to quantify those benefits in the budget. 
 Therefore, we think that computation of the regulatory budget itself would 
 stimulate more attention to benefits and more conceptual work on calculating 
 benefits. 
 
 Finally, there is the question of process. We don't think that any agency, 
 be it a regulatory agency or an agency like the Department of Commerce, could 
 have the unbiased reputation for actually computing this budget. If we develop 
 a regulatory budget, there will have to be some central agency that is in a 
 sense a traffic cop, an unbiased arbitrator. It will have to be located some- 
 place in the Executive Office of the President. In addition, we feel there 
 would have to be congressional participation. 
 
 We have seen some congressional interest in this idea. In fact, Congress might 
 develop a process similar to the Budget Act of 1974 through which it would 
 subject its own regulation writing committees to an overall 'ceiling each year. 
 
 If something like this were ever to work, it would have to be a joint venture 
 between the executive and legislative branches. Otherwise, given Congress' 
 increasing role in setting regulatory goals — in setting goals and then setting 
 the regulations through which we achieve these goals — I think we would not get 
 very far if we only pursued an executive branch regulatory budget. 
 
 MR. JASINOWSKI : Thank you very much, Lucy. That is a useful summary of 
 the paper and some of the issues associated with the regulatory budget which 
 have already been raised. I know several of you have questions and suggestions 
 and criticisms about it. 
 
 Allen Ferguson wanted to make a comment so Allen, why don't you start out. 
 
 MR. FERGUSON : I had a fairly large number of comments and I will try to 
 hit only the most important ones to begin with. I have great trouble with the 
 concept. I have great trouble with the paper. The paper in the first place 
 deals primarily with process and the real question is not how to do it but 
 whether to do it. This really is not addressed at all in the paper. 
 
 I think that is probably the question on which this group should focus. The 
 second thing tees off directly from Lucy's last point and that is that any 
 budgetary process as it is practiced and as it is proposed here, is in a sense 
 backwards as a fundamental planning device. 
 
 You ought to begin with what the object of the game is and then look at how 
 you get there, how you accomplish that object. I could not help thinking as I 
 read through this, the gross sort of analytical inferiority of this to program 
 budgeting . 
 
42 
 
 Program budgeting, at least in concept, began at the beginning. I think it 
 is fair to say it was never tried so no one can say that it failed. But this 
 also relates fairly closely to John Meyers' point about the relevance of cost- 
 effective analysis which I always subsume under cost-benefit analysis. 
 
 It might make sense to begin with some notion of level of effectiveness that 
 is desired. Some kind of general objective, such as in this year or in the 
 next five years reduce expected hazards in various categories by some specified 
 amount . 
 
 Then deal rather systematically with whether the marginal $10 million is better 
 spent in saving lives by more air traffic control, more occupational health and 
 safety, more environmental protection. Certainly, we ought to begin at the 
 beginning. 
 
 A closely related thing is — if you begin at the beginning, it becomes obvious 
 that it is closely related — the question of whether a regulatory budget makes 
 sense separated from a tax expenditure budget and so on. Economists are full 
 of theorems about the disadvantages of artificial compartmentalization, and, 
 it seems to me they apply here. 
 
 If we are interested in some kind of social objective, then there is no 
 particular reason, certainly no particular logical reason, for treating the 
 regulatory methods of moving in that direction separate from the subsidy 
 methods, the tax subsidy methods, loan guarantees and so on. 
 
 If there were to be a cost oriented budget process, then I would think the 
 best way to obfuscate, and obfuscation is often an important managerial tool, 
 is to deal with net costs so that the benefit calculation is in from the 
 beginning. 
 
 Another set of comments deals with the way the process might be applied. Going 
 back to the consensus that you achieved some time ago on "economic" regulation, 
 the government ought, in my judgment, begin where we know what we are doing. 
 We know what we are doing in the cartel or economic regulation. I think it is 
 fairly safe to say that the net benefits of those agencies are by and large 
 negative. If one were to begin with a regulatory budget process, that would 
 be the first proposition that would come out of the regulatory budget process 
 in my judgment. 
 
 MR . J AS INOWSKI : Allen, let me come back to you so some other people can 
 jump in on this. Bill Nordhaus has been doing some thinking on the general 
 question of how you improve the central information gathering and analysis of 
 regulatory policy. Bill, do you want to make some comments? 
 
 MR . NORDHAUS : I wanted to comment on the regulatory budget proposal, to 
 give two of the reasons why I think it is absolutely critical that you have it 
 and two reasons why I think it won't work. Why is it critically important? 
 There are two kinds of defects that I see around. 
 
 The first one is that nobody has the slightest idea how much all the regula- 
 tions the federal government produces each year cost? 
 
43 
 
 If you go around and ask people, "How much do you think the new regulations 
 we are proposing next year cost?" they will shrug their shoulders and say a 
 billion dollars, couple of million dollars, maybe. Or else they say two 
 trillion dollars, depending on what their point of view is. Usually they 
 don't have the slightest idea. 
 
 The general populace, the Congress and about 90 percent of the executive branch 
 and regulatory agencies have not the slightest idea what the number is. 
 
 The second defect in the system is that by internalizing one externality we 
 have created another. The costs that are imposed on the private sector by 
 regulatory agencies are not internalized in any way — that's a little strong 
 but basically true. 
 
 Regulators look very carefully at their own administrative costs, how much it 
 costs to enforce and so on, but look nowhere near as carefully at the costs 
 they impose on the private sector. It is very important that somehow the 
 costs regulators impose be internalized because that is the only way regulators 
 are going to economize. 
 
 What is needed is a way to impose budget discipline on regulators. Compare the 
 budget process: on some of the major weapons programs, the Department of 
 Defense is fighting like cats and dogs, but there is an internal discipline in 
 the Department of Defense because they know someone is going to look over their 
 shoulders at the budget totals. 
 
 Having said why I think it is critically important, let me say two reasons why 
 I think there are serious defects in the regulatory budget. The most critical 
 one is what I call the funny money problem. 
 
 These regulatory dollars that are being budgeted are dollars that no one can 
 ever find. You can go out and try to measure them, and think you can find them, 
 but I don't see how any process in this government could ever find anything 
 precise enough to use in a quasi-budget process. 
 
 If you go and look at Moore's cost estimates of the cost of surface transporta- 
 tion, I think it is a factor of three between the high and low estimates of the 
 cost of surface transportation regulations. 0MB cannot go to Eula and say, 
 Eula, I want you to keep your costs down, your regulatory budget this year is 
 $10 to $30 billion. That's not a management tool. 
 
 Let me further suggest that this is a deep analytical problem. Some people 
 think that if we can get the smartest people working on it, we can find a 
 solution. It's just not there. There is no way you are going to separate out 
 from the joint cost allocation what are regulatory costs and what are non- 
 regulatory costs. 
 
 Let's say we keep piling on regulations on the coal industry to solve the 
 sulfur emission problem. At some point, people will turn to a completely 
 different technology, say oil or if we rule that out, nuclear. When the pro- 
 cesses change, or someone invents a new process which is a lot more expensive 
 
44 
 
 but does not have any pollution control in it because it is inherently clean 
 (say gasification process instead of the coal burning process) , none of it is 
 pollution control in a sense but all of it is in a sense. 
 
 It is fundamentally impossible to separate out pollution from non-pollution 
 equipment after a couple of years. 
 
 The fourth point on a regulatory budget. I would endorse what Allen Ferguson 
 said. A budget starts from the top where it should start from the bottom. If 
 we took a poll around this room, what should the regulatory budget be for next 
 year, some people would know it should be zero and some people would know it 
 should be unlimited. 
 
 But if you seriously sat down and asked should it be $5 billion or $100 billion, 
 I haven't the slightest idea. You would not know until you saw what are the 
 problems, how many benefits are you going to get, what are the costs, what is 
 the time frame over which we are doing this, what are the alternatives? 
 
 This suggests the regulatory budget is basically a good analogy, but there will 
 be very difficult problems in actually implementing it. 
 
 MR. JASINOWSKI : Thank you very much, Bill. Your comments and Allen's go 
 to the significant problems we face in this area and we are quite realistic 
 about them ourselves. 
 
 Let me make two points though that vitiate the extent to which the problems 
 you raise seem so insurmountable. With respect to the regulatory budget, it 
 would be our hope not to try to take into account the efficiency losses that 
 you see in studies by people like Moore on transportation where you do have 
 the "funny money" problem but to try to focus initially on the questions of 
 direct costs of government with respect to regulations and the direct costs 
 associated with private firms. 
 
 In both of those cases, you can make those measurements. You do have some 
 problems with joint product and you have some problems with indirect costs and 
 those problems are real. You can make estimates there that are not a factor 
 of three in terms of differences. 
 
 Maybe I'm wrong on that and I think that deserves further review. With respect 
 
 to the orientation toward the question of what are goals and benefits here, 
 
 that is useful and one of the things we ought to take into account as we eval- 
 uate this concept. 
 
 Marvin, you were going to make a point. 
 
 MR. KOSTERS : First of all, I agree completely with the second part of 
 Bill Nordhaus' remarks on the difficulties in measuring costs of regulation. 
 But despite that, I would myself think it highly desirable to try to work 
 toward some sort of regulatory budget, one that concentrates on costs initially 
 as distinct, for example, from net costs that take into account benefits. 
 
45 
 
 In regard to computing costs, there will always be problems in developing 
 estimates with any precision, and the cost estimates can never be a very sharp 
 tool it seems to me. One problem is that there are ambiguities about what is 
 the baseline from which costs should be measured, in addition to joint cost 
 problems and so on. 
 
 Contrary to what some people might believe, business firms would normally 
 spend something, for example, to improve worker safety because it would be a 
 good business practice; as economists say, it would be consistent with "profit 
 maximizing" on their part. 
 
 I am sensitive to the point expressed by Mark Green that costs are likely to 
 be overestimated. I think that's probably right, but one reason for that is 
 when business firms are in a regulatory environment, they tend to lose sight 
 of why they are doing what they are doing , and to attribute to regulations not 
 only the cost of the regulations but what they might also do to some extent in 
 any event. 
 
 There is an irony here, that for those who would think that business would do 
 very little, the cost estimates might be about right. For those who recognize 
 that business would in any event spend something, for example, on better worker 
 safety, the costs would be overestimated. 
 
 I think even though there will be lots of difficulties, there will be consid- 
 erable crudeness in the process, it would at least be useful to get some notion 
 of the order of magnitude of regulatory costs and I think we ought to start 
 there. 
 
 I think we ought to start systematically developing cost of regulation measures, 
 probably even on some kind of experimental basis, taking only a few agencies 
 where cost estimates are best evaluated. I would also prefer to see us start 
 at an earlier date rather than a later date. 
 
 MR. JASINOWSKI ; Toby Clark. 
 
 MR . CLARK : I would like to comment on some of the points that have been 
 made and reemphasize those I agree with. I disagree with Bill Nordhaus' first 
 two points but agree with the second two. 
 
 With respect to his first point, we do have the "slightest idea" of the costs 
 of environmental regulations, at least in the pollution area. We have spent a 
 good deal of effort on estimating — and publicizing — them. They remain, of 
 course, quite imprecise. But these problems of accurately estimating costs 
 show the problem of doing a regulatory budget. They are the same thing. The 
 reason we can't estimate costs accurately now is the same reason why a regula- 
 tory budget in fact probably won't work. 
 
 Personally, before I continue, I should probably come out of the closet and 
 admit that I am interested in and support the concept of a regulatory budget. 
 But it is because I support the idea that I am concerned that the history of 
 the federal government is spewed with the debris of good ideas over the last 
 
46 
 
 ten years — ideas like program budgeting, management by objective, etc. — that 
 have been pushed too far, too fast and have become useless or at least unused. 
 
 I see all the potential for that happening in this case, too. I have been 
 painfully involved for the last five years in trying to make these cost 
 estimates and in trying to figure out how much firms would be spending in the 
 absence of pollution control laws. It is very, very difficult, often being 
 more of a philosophical question than an estimation problem. And there is no 
 way to measure these costs. The Bureau of the Census conducts pollution 
 expenditure surveys every year and they are not even sure what they are 
 measuring even after the expenditures have been made. 
 
 If you cannot even measure total expenditures, you certainly can't observe how 
 much of the cost result from federal regulations. 
 
 MR. JASINOWSKI : Are there any other comments on the regulatory budget? 
 Al Sommers. 
 
 MR. SOMMERS : Mr. Haslam mentioned that the ABA report took a strong 
 position on the expansion of centralization relative to expertise in the 
 management of our regulatory effort. I think one of the reasons that the ABA 
 took such a position was that it was impressed by the fact that there is a 
 commonality within the parts of the regulatory effort and a higher degree of 
 oversight, even granting the politicization possibilities. 
 
 The ABA report points to problems of conflicts of objectives, problems of 
 allocation of effort across the whole regulatory front and problems of con- 
 straint on the aggregate outlay. Now there is a reason to wonder about the 
 proposal to constrain the aggregate since as someone else mentioned, regulation 
 is part of an economic universe. Why is this aggregate among all of them to be 
 constrained? 
 
 My own impression is that the effort is warranted, as it is with the budget, 
 year by year we attempt now to constrain the aggregate leaving the future 
 free. That is, we can elevate the aggregate where our indications seem to 
 warrant. 
 
 My own impression is that an effort at the regulatory budget, granting the 
 incredible problems of measuring even the direct costs, is a step toward a 
 rational view of the degree of regulation to which we are subjected, i. e., 
 the costs and the alternative benefits. 
 
 As in so many other areas of economic development, it is an initial determina- 
 tion that starts the swelling of the resources into the measurement problem. 
 If the regulatory budget would provide that, groping though it would be at 
 first, I think it is an element perhaps in education and self-realization of 
 the dimensions of the problems of regulation. 
 
 MR. JASINOWSKI : Toby wanted to make another comment. 
 
 MR. CLARK : I do want to make one final comment about the problem of 
 going too far too fast with this idea. That is really my main concern. I 
 
47 
 
 see another major problem with the implementation of the concept which has to 
 be carefully thought through. That is, that the idea of a regulatory budget 
 apparently presumes that if you saw costs getting too great, you could do 
 something about it. 
 
 In fact, a regulation we pass this year is not going to influence costs this 
 year. It will influence expenditures two, three, four, up to ten years in the 
 future. The degree to which we can accurately estimate what these expenditures 
 are that far in the future is limited. Quite honestly, I would put plus or 
 minus 100 percent on it. 
 
 If you focus the regulatory budget on this year or next year, there is very 
 little opportunity to affect those budgets. Almost all of the expenditures 
 are made in response to regulations adopted in past years. It would not make 
 much sense for us to run out and raise our arms and say stop building that 
 thermal cooling tower, we don't want you spending more money or we will exceed 
 our budget. That just would not be rational good policy • 
 
 MR. J7ASINOWSKI : Let me ask Frank Cary or Fletcher Byrom to comment on 
 the question of the acceptability in the business community of a movement 
 toward a regulatory budget, leaving aside many of the technical issues which 
 we regard as valid. 
 
 There is a political issue even within the business community as to whether or 
 not this is a direction in which to move and I would like one of you to comment 
 if you would. 
 
 MR . CARY : I will let Fletch comment on his own. I'm sure there are many 
 members of the business community who would look upon this as national planning 
 and would object to it on that basis. I personally don't have any trouble with 
 the concept. 
 
 I think the concept is all right, but it sounds to me like something that 
 couldn't be done in less than 25 years. My reaction to it is that there are a 
 number of practical steps that should be taken now which are of more immediate 
 concern and also might serve as groundwork for a regulatory budget. We should 
 try to move ahead with implementation of the President's Executive Order and 
 also extend it to the independent agencies. Perhaps we should create an office 
 to oversee the agencies and insure that they do follow the President's Executive 
 Order so as to produce the kind of results that I think we need very badly in 
 the short term. 
 
 But conceptually to work towards that kind of thing long term, I think you 
 people will need to have a much better idea of all the difficulties described 
 so far. From what I've heard today, I think the regulatory budget is a very, 
 very difficult thing to do. 
 
 MR. BYROM : To avoid the criticism of being in favor of national planning, 
 I subscribe more to the concept of anticipatory analysis. I think we have a 
 real problem in this study which has been underlined by Bill Nordhaus ' comments 
 that particularly at the micro level of economics, we don't have the data base. 
 
48 
 
 One of my real concerns here is that on practically all things, we start to 
 try to do something to improve our society without having any facts on which 
 to base our proposals. I keep finding that regardless of who I am discussing 
 it with, I am in complete agreement with the objectives but constantly in 
 disagreement on the methodology used to accomplish them. 
 
 I agree with Frank, to have any early hopes that we are going to come up with 
 something that will solve this quandary I have just described is optimistic. 
 I think it's a long, long process. I would like to see us start to get on 
 with it in the hopes that my grandchildren will not have the same frustrations 
 that I have. 
 
 But I believe that also we can do things bit by bit, as long as we have the 
 humility to recognize that we are probably going to be wrong. 
 
 MR. JASINOWSKI : Let me suggest in closing the morning session that 
 there are intermediate steps between where we are now and a full-blown regu- 
 latory budget. As Lucy indicated, there are lots of different ways in which 
 you try to prepare a regulatory budget. 
 
 Some of those intermediate steps have to do with the regulatory agenda or 
 regulatory calendar in which we don't try to do all the things associated with 
 the budget but simply try for those things we can measure, lay out what is 
 associated in terms of costs and if we have benefit information, to do the 
 same on an annual basis. 
 
 Although there are limitations to the budget concept in its full-blown model, 
 there are alternatives along the way which we will want to consider. In the 
 afternoon we will pick up on those kinds of alternatives. 
 
 (Whereupon, the meeting was recessed for lunch.) 
 
 AFTERNOON SESSION 
 
 MR. JASINOWSKI : This afternoon we would like to focus on two remaining 
 items on the agenda. They don't decrease in terms of difficulty as we move 
 forward. Those two items are first, a discussion on alternatives, both within 
 the context of conventional regulatory approaches such as performance standards 
 and specification standards. That is to say alternative ways to achieve a 
 particular regulatory goal at least cost. The second meaning of the work 
 "alternative" is to look at nonconventional regulatory approaches in the form 
 of tax incentives or user charges or even voluntary techniques by which we 
 might achieve regulatory goals. 
 
 These have not been used a great deal, but there are examples of where they 
 have been used and we think we ought to pursue those. Related to both of 
 those is the idea which many people have worked on of pursuing multiple strate- 
 gies for achieving regulatory goals. 
 
 Following that we would like to turn to a summation of the session overall and 
 what the group feels are the future priorities we ought to pursue. 
 
49 
 
 In that discussion, we may want to reintroduce some of the issues we have not 
 resolved and may not resolve today but which we might come to some greater 
 agreement on, so that we can continue the kind of research and dialogue that 
 we have had here today. 
 
 We have a chart on alternative approaches. There are: 
 
 • conventional regulatory approaches where we mandate what particular 
 firms will do in order to achieve regulatory goals; 
 
 • tax incentives or user charges which we are now considering with the 
 Resource Recovery Act. We have seen some action with respect to barge 
 traffic in this Congress and there has been a long debate on the extent 
 to which we use market incentives versus mandatory approaches; 
 
 • informational approaches which are largely voluntary but in some cases 
 may be the correct approach; and finally, 
 
 • mixed strategies. 
 
 There are a number of people who want to speak to the first issue so rather 
 than take a great deal of time myself, I will open it up far discussion. 
 
 Fletcher Byrom began the discussion on alternatives this morning as something 
 he thinks is crucial to the way we approach regulatory issues. I wonder, 
 Fletcher, if you would be willing to start out the discussion by repeating some 
 of what you have said and indicating what further things you believe are 
 important here? 
 
 MR . BYROM : Maybe the best way, to be as clear as I can let me give an 
 example. Basically, I want to use Dr. Bingham's agency as an example of how I 
 would see one way of doing it. If I sound as though I am idealistic and 
 believe in miracles, maybe that is the case. 
 
 What I would like would be to see labor and management by different industries 
 sit down and attempt to arrive at acceptable levels of performance. I recog- 
 nize the difficulties of this because labor in effect has a political 
 responsibility . 
 
 Whether they anymore than Dr. Bingham feel they can accept anything other than 
 perfection, I don't know. 
 
 But if you could establish frequency and severity rates by industry which were 
 acceptable levels, where OSHA could be a catalyst, a moderator to the labor- 
 management process and you would arrive at performance standards which would 
 be acceptable performance, you would arrive at a mechanism of reporting perfor- 
 mance which would give adequate disclosure of what the actual performance was. 
 
 This would be certified by the chief executive of the corporation as being a 
 proper statement of what the performance had been. I would suspect that his 
 certification would be subject to the normal punishment if he in any way 
 fraudulently misstated the thing. 
 
50 
 
 RT 3 
 
 ALTERNATIVE APPROACHES AND THEIR MAJOR VARIANTS 
 
 • REGULATORY APPROACHES 
 
 - PERFORMANCE STANDARDS 
 
 - SPECIFICATION STANDARDS 
 
 - CASE-BY-CASE STANDARDS OR PERMITS 
 
 • INCENTIVE APPROACHES 
 
 - TAXES (USER CHARGES, FEES) 
 
 - SUBSIDIES 
 
 - LIABILITY MEASURES 
 
 t INFORMATION APPROACHES 
 
 - DISCLOSURE 
 
 - EDUCATION 
 
 - JAWBONING 
 
 • MIXED APPROACHES 
 
 - MARKETABLE PERMITS 
 
 - SURCHARGES 
 
 - COMBINATIONS OF THE ABOVE OR OTHERS 
 
51 
 
 What I am advocating is a self-regulating kind of situation which would 
 include economic incentives for improved performance and for poor performance. 
 I, very obviously, feel that this is the way we should be moving, rather than 
 to a methodology that decides not only what the performance should be, but how 
 you intend or how you are supposed to get that performance. 
 
 The performance standards as far as I am concerned would have to do with an 
 ambience that would be acceptable at a given point in time . 
 
 MR. JASINOWSKI : Let me ask you for a point of clarification, Fletcher. 
 When you talk about this proposal having incentives tied to it, do you mean 
 there would be natural incentives to achieve the goal? 
 
 MR. BYROM : No, I think there are natural incentives, and I am not 
 speaking on behalf of all my colleagues and peers who happen to be in industry 
 when I say this. But I for one would accept fees and would hope there might 
 be such things as tax credits or something. 
 
 But I would also believe that in the case of EPA, for example, there are 
 natural incentives in the chemical processing industry. If instead of treating 
 an effluent, if you can eliminate the discharge, the chances are your recovery 
 yields are up and it may make some money for you. 
 
 MR. JASINOWSKI : John Meyer. 
 
 PROF. MEYER ; I want to make sort of a speech, I guess, and I apologize 
 in advance. First of all, a reaction to the budgetary problem. I think as a 
 first cut, the thing to do is to get a feel for the costs. But I am worried 
 about some other things Allen pointed out. 
 
 I think I have been involved in about as many of these benefit-cost capers as 
 anybody and I would suspect probably the largest scale attempt to estimate the 
 benefits and costs of a particular application, effluent controls for the 
 automobile industry. I have also been involved in several others, water 
 quality commission reviews and so on. 
 
 I must say that I am struck by one thing which I am afraid that a broad brush 
 budgetary approach would miss and that is essential in about every one of the 
 cases that I have looked at with any depth. You usually find that technology 
 and cost tradeoffs lead you into a few crucial decision points. Generalizing 
 about a "best" solution is therefore very difficult. 
 
 Let me illustrate. For autos, much clearly depends on the level of the N0 X 
 standards. If you insist on rolling back to .4, the costs go up because you 
 rule out stratified charge and diesel technology to a considerable extent. 
 
 If you compromise at 1.1 or 1.2, cleaning up may almost be costless because 
 diesel and stratified charge technologies get rid of the hydrocarbons and 
 carbon monoxide problems almost automatically. On the other hand, it is also 
 clear that in certain cities, Los Angeles being a classic case, N0 X from 
 automobiles is a real problem and so maybe you do need a special solution. 
 
52 
 
 Another major N0 X impacted city is Chicago but there the majority of the N0 X 
 comes from stationary sources so a solution that is appropriate for Los Angeles * 
 N0 X impact problem is probably not appropriate for Chicago's. I see no easy 
 way of any simple pricing scheme getting at this . 
 
 The only thing that gets you at it I think is to get into the details of the 
 technology and actual facts and then try to design and negotiate a solution — 
 that is why I like the negotiation session suggestion. You try to design what 
 is sensible in the particular instance. 
 
 Another example is the paper industry's water pollution problem. Apparently 
 costs depend very heavily on what kind of bleach standards are insisted on for 
 paper. The cheapest way of solving this industry's problems — at least it's a 
 good hypothesis — would be a government regulation saying papers of a certain 
 whiteness can no longer be sold so that such competition is ruled out. 
 
 Aerosol is another example. There the obvious thing that the industry was 
 waiting for was what amounts to a cartelization activity by government ruling 
 out using high cost aerosol technology, forcing a return to lower cost pumps. 
 As long as the industry knew everyone was not going to use aerosols, they were 
 quite willing because costs went down. 
 
 If you look at water basis systems, it may be difficult to design a set of 
 prices that take into account all the interactions. It may well be beyond 
 regulatory intelligence. You might be better off in taking a comprehensive 
 planned approach and achieve more for a given outlay of cost. 
 
 Or take urban highway congestion. Many economists talk about using the price 
 mechanism to solve that. In theory it's excellent and there are a great many 
 cases where you can do something with prices. The truth in most instances, 
 though, is that it's cheaper to shut down some on and off ramps, put on more 
 traffic lights or use a little more paint. 
 
 In short, I don't think you can generalize about these alternative approaches. 
 I also think any kind of broad brush approach, including a regulatory budget, 
 may divert you from doing what I think is at the heart of trying to solve many 
 of these problems. 
 
 That is, in each case, you really have to dig into the technologies, the 
 product tradeoffs, the way that people and organizations react. Somehow or 
 other, the program you develop must come to grips with these specifics. Per- 
 haps, at best, we can institutionalize negotiating sessions and hopefully can 
 implement what we discover. End of speech. 
 
 MR . JAS I NOWS KI : Actually, it was quite a good speech, John. We are 
 coming to realize increasingly that these questions must be handled on a case 
 by case basis to a large extent. But, that does not disagree with Fletcher's 
 point. 
 
 PROF. MEYER : I think it is Fletcher's point in a way, it's the same 
 point. He is saying not only is it case by case but then you need some sort 
 of institutionalized mechanism to get to the ad hoc solution for each one. 
 
53 
 
 MR. JASINOWSKI : I wonder, Eula Bingham, if you would comment on that for 
 us because I think it goes to many of the issues you face in OSHA. 
 
 MS. BINGHAM : I will comment on that but along with some other things 
 before I do have to leave to go to another meeting. First of all, as I look at 
 this outline you have here before us, in terms of regulatory approaches, I 
 would say that I personally favor performance standards wherever they are feasible. 
 
 We do have some constituents who have a problem with performance standards 
 since they don't have the wherewithal to go out and judge whether or not the 
 particular specification is acceptable. It is very interesting that they are 
 usually the workers themselves who have no way of understanding whether the 
 solution is adequate or not without having a massive union organization behind 
 them, and most workers are not organized in this country. 
 
 The other group is the small business community which really cannot afford to 
 go out and come up with the specifications. So time and time again, we are 
 faced with those two groups of people telling us that we would like to have 
 some specifications. 
 
 Now the way one does that, of course, we perhaps can have a performance standard 
 and then give examples of specifications as they come along. I did want to 
 comment on some other alternatives, one of them that I would like to comment on 
 is education. 
 
 Certainly, we have begun a large program of education among the labor unions, 
 the trade associations and have asked universities to help out. While I am 
 firmly committed to education, I do have a problem with one of these that was 
 put in a document that talked about the incentive and informational approach to 
 the question of asbestos. 
 
 Even though you educate workers about the problems, then you cannot say to that 
 worker, well, you know, those are the hazards. I believe the way it was put 
 here was that workers can then decide whether the working conditions and remu- 
 neration levels are sufficient for them to accept the associated health risks. 
 
 I don't think they are prepared to make that kind of decision because, as I 
 said before, they are poor people and they need a job and we need to help them 
 come to a decision on this. That does not say that I don't think that workers 
 and employers should be well-informed of the hazards of the workplace. 
 
 As a matter of fact, I think that that may be the way that we will gain the 
 most in the health and safety field in the next five to ten years. Not with 
 any additional standards we put out or enforcement by a puny number of compli- 
 ance officers , but actually having a work force and employers that are 
 knowledgeable about the hazards. 
 
 While I am for that, some of these decisions you might want to force on a 
 worker who is a captive of that job is very difficult. I think those workers 
 should work with management. Labor/management committees I think are great 
 ways to come up with solutions to problems . 
 
54 
 
 I have always said to the people in the labor community , why have you not put 
 anything in your contracts on health and safety when you put it in there for 
 an increase in pay and to pay for health insurance? 
 
 The other thing I have to say in passing, I see under the incentive approaches 
 you have listed liability measures. I am interested in that because I under- 
 stand that is one of the things the Department of Commerce is doing now. They 
 have a proposal that would spread the cost of product liability over us all, 
 rather than over the industries who make the defective products. 
 
 I was rather amused when I saw that as an incentive measure when you were 
 talking about doing away with it. I must say some of those incentives I think 
 are good ideas . 
 
 MR. JASINOWSKI : On the product liability question, I think the issue has 
 been resolved. C.L. is one of our experts in the Department so I will pass 
 that on to him, but the issue has been resolved in a way which is not along the 
 lines you indicated. C.L., do you want to comment? 
 
 MR. HASLAM : Yes, but I don't think I will take up much time, since that 
 "potato" is not hot. We have not proposed spreading the cost of product 
 liability across society as a whole. We are looking at several tax aspects. 
 We recommended including in the tax bill an extension from three to ten years 
 of the carryback provision for net operating losses due to product liability 
 costs, but I don't think we need to go into that now. 
 
 MR. JASINOWSKI : Picking up from what Eula Bingham has said, there seems 
 to be some agreement that the notion of looking at these questions on a case by 
 case basis, using multiple approaches including incentives, and attempting to 
 educate and negotiate at the firm level, is a useful idea. 
 
 Is there anyone who wants to challenge that or modify it? Allen. 
 
 MR. FERGUSON : I have problems with all of these points. I did not inter- 
 pret John Meyer's statement as meaning case by case in the very small sense. I 
 did not interpret it as meaning that each firm would be handled differently or 
 that we would go the ICC route. 
 
 MR. JASINOWSKI : I didn't either. 
 
 MR. FERGUSON : If we are talking in terms of broad categories, I would 
 not have much problem with that. 
 
 The second point I want to make is this: We, that is the Public Interest 
 Economics Center in a number of cases, have run into the notion that there is 
 something immoral about paying a fine, i.e., that breaking a regulation and 
 incurring a fine of 50C a year or $1,000 a day is a very different thing from 
 paying $1,000 a day for anything else a producer buys. 
 
 It seems to me that before we can go very far in incentive approaches such as 
 taxes or user fees, there has to be something done to make clear that it is 
 
55 
 
 not lying, cheating and stealing to pay the fee or fine involved. It is 
 buying flexibility in a way that is exactly analogous to buying other things. 
 
 If the "fine," is set appropriately, then eventually that will turn out to have 
 been a good idea. At the same time, I want to make one comment that troubles 
 me. I can show you, if you will accept my assumptions, that fines and incen- 
 tives will bring one close to an economic optimum. But I can show, by exactly 
 the same reasoning, that child labor laws are inefficient. Somewhere there is 
 a kind of division here: Even if it is less efficient, there is a basis for 
 not having child labor and there is a basis for not having grossly substandard 
 housing and so on. This is a kind of boundary that has been widely accepted 
 and it may get at some of the problem of occupational safety , environmental 
 control and things like food safety nutrition. I have some other points, but 
 I have taken enough time. 
 
 MR. JASINOWSKI : Kerry Smith. 
 
 MR. SMITH : I would like to followup on Allen's comments and get to the 
 question of operationalizing a problem by problem approach to looking at the 
 regulatory incentives used. In the paper that was distributed as part of this 
 issue, there were a number of criteria identified. 
 
 What we have to recognize, and I am sure John would agree with this, is that by 
 focusing on a problem by problem approach, we simply economize on the kinds of 
 information we have to bring to each decision. We still have to decide upon a 
 set of criteria for making those decisions about what instruments or combina- 
 tions of instruments will be used for the particular regulation. 
 
 In the paper that was distributed, four such instruments were identified and 
 since they relate to the comments Allen was talking about in some of the other 
 discussion, I would like to go over them a little bit. 
 
 One was effectiveness, another efficiency, another equity and the last, politi- 
 cal feasibility. I found the definition of each of these used in the paper to 
 be peculiar. That may be the most understated comment I could make. 
 
 Effectiveness was stated in a way that would not be consistent say with John's 
 comments this morning in terms of cost effectiveness. Efficiency was not 
 stated in terms of what economists would normally define as allocative effi- 
 ciency but rather what a prudent man would do under certain circumstances and 
 ignored the potential interaction of macro efficiency. 
 
 Equity was not defined in terms of equity to the affected parties but rather 
 equity to those who we are regulating and I think that is a very unusual 
 distinction. A lot of the concerns we are talking about in terms of the rela- 
 tionship, let's say between certain sets of standards and what we might do with 
 child labor laws, speak to the question of equity and what is a fair and 
 reasonable solution to the problem. 
 
 The last was the question of political feasibility and it seems to me that the 
 issue we cannot afford to lose touch with is that the rulemaking process in 
 
56 
 
 part is a function of what is a politically feasible set of legislation that 
 gets by. 
 
 In effect, what we do is make the laws a little bit more slippery perhaps 
 because everybody can agree on them and leave to the discretionary authority of 
 the agency the operationalizing of those rules. So there is an important 
 interaction in how we apply these criteria and how we look at the legislation 
 and evaluate it. 
 
 Let me stop with that. 
 
 MR. JASINOWSKI : Having said that, Kerry, what does that lead you to in 
 terms of a correction of the meaning of the criteria so that they make more 
 sense in the discussion we are having with respect to fees and incentives? Do 
 you have any comments going beyond what you have said? 
 
 MR. SMITH : I would say that efficiency ought to be defined in terms of 
 resources being allocated to their highest valued uses. Equity ought to be 
 defined in terms of a criterion that is more conventionally accepted by 
 economists and social scientists and policymakers in terms of not just the 
 parties being regulated but the parties being affected by the actions if there 
 were no regulations . 
 
 Effectiveness ought to be described in terms of the transaction costs associated 
 with accomplishing a given objective. The cost-effectiveness analysis that 
 John Meyer talked about earlier. Political feasibility it seems to me in part 
 is not trying to second-guess what is acceptable to various interest groups. It 
 is also trying to recognize what are the legitimate functions of a rulemaking 
 body and what are the legitimate functions of a legislature. 
 
 MR. JASINOWSKI : Making those corrections, does it lead you to any comments 
 on the particular alternative approaches that one can take in this area? 
 
 MR. SMITH : I guess the comment I would make is that probably mixed 
 approaches are more likely to be the best overall, simply because they provide 
 the most flexibility. If we are going to adopt a problem by problem orienta- 
 tion, then it seems to me the particular characteristics of that problem will 
 mandate a combination of one or more of the instruments. 
 
 What we want to do is not fix ourselves into a particular set of instruments, 
 but fix ourselves into a particular set of criteria for deciding on what 
 instruments ought to be used. 
 
 MR. JASINOWSKI : Bill Nordhaus is anxious to make a comment. 
 
 MR . NORDHAUS : One small comment on negotiation. I think there are some 
 places where negotiations are useful but others where they are not really the 
 heart of the problem. You cannot expect a steel plant in Pittsburgh to get in 
 negotiations with all the citizens of the State of Pennsylvania as to what 
 effluent levels are allowed and what means of compliance should be allowed. 
 
57 
 
 In the labor/management area, there's one possibility in safety standards say, 
 but by and large, most of the major regulations involve too many parties. 
 
 On the question of alternative approaches, there is something misleading about 
 this discussion, saying we should be balanced and have a mixed approach. It 
 might lead you to think that we have a balance already. The fact of the matter 
 is that we have a regulatory system that uses 99.44 percent commands and 
 virtually none of the things called incentive approaches. 
 
 I think it is important to realize that when you say we ought to be balanced 
 and use a mixture, that that is a radical change in the way this country would 
 do business. 
 
 Why is it that we do not use incentive approaches? 
 
 I don't know any good answer to that question except that that is the way we 
 have always done it and, golly, let's not change the way we do things. There 
 is also the fact that Congress grants an authority to regulate, which means to 
 set the regulatory dial according to how many parts per million of this or what 
 exposure level of that. Congress has pretty much gotten out of the business by 
 saying .2 this, or 1.0 that. Once you delegate to the regulatory authority the 
 dial setting power, then you have to ask, would Congress also delegate the 
 power to set taxes or fees? 
 
 Pundits say of course not, although from time to time they do. In the energy 
 bill they did delegate to the Secretary of Transportation the power to raise 
 the noncompliance fee for the fuel economy standards. 
 
 But I would like to differ from the audience here and say I think we can make 
 a lot of progress by moving in the incentive approach whether it's by taxes or 
 fees or noncompliance fees or whatever. There's just a lot of room to move and 
 let me give one example. 
 
 That is, under the '77 Clean Air Act, Congress granted the right in many areas 
 of the country to increase the pollution levels, to have increments to pollu- 
 tion. It's a little like the oil on the outer continental shelf, it is a 
 natural resource we are going to allocate. 
 
 How do you suppose EPA was going to allocate that? In the traditional way, 
 first come first served. Now why in God's name would you want to do it that 
 way rather than recognize that this is an extremely precious resource in many 
 areas of the country, and it should be treated as one rather than squandered 
 away to the first big utility company who gets to the door. 
 
 If you really mean we have a mixed approach, we have a long way to go before 
 we get to a real balance. 
 
 MR. JASINOWSKI : John . 
 
 PROF. MEYER : That's fair enough, Bill, but it seems to me we should not 
 rush in willy-nilly to an incentive approach. That is really all I was trying 
 
58 
 
 to inveigh against by pointing out that these different cases have different 
 circumstances . 
 
 Let me take a cut at a compromise. Perhaps some kind of standard setting, 
 maybe done better than it is done today, makes sense, for example, when product 
 competition is the basic difficulty, as in bleached paper or the aerosols. 
 
 By contrast, a case where the incentive system may work very well is where you 
 have some difficult tradeoff problems . 
 
 Steel is a good illustration. As I understand it, it's basically a tradeoff 
 between air and water pollution. When you get one corrected, you get the other 
 adversely affected to some extent. Apparently some chemicals and some safety 
 standards are of that type too. 
 
 There the incentive and pricing approach might have a lot to recommend it 
 because it gives people something to work on in making those internal tradeoffs. 
 
 MR. NORDHAUS : I agree we shouldn't rush into it, but I think there is 
 little danger of that. 
 
 (Laughter. ) 
 
 PROF. MEYER : There may be little danger of it, but let's face it, Bill, 
 the economics profession does love to extol the virtues of simply extending the 
 use of the pricing mechanism without recognizing there are some limitations on 
 it as well. 
 
 MR. NORDHAUS : Let's face it, people don't listen. 
 
 MR. JASINOWSKI : Let's turn to Toby Clark for a minute and see what 
 comment he might have on this question from the point of view of EPA. Toby, I 
 know you have done some work in this area, and I guess you could say you are 
 taking a gradual approach. 
 
 MR. CLARK : Here again, I am personally a believer in incentive approaches, 
 and EPA has recently become more interested in looking at incentive type 
 approaches. We are not nearly as interested as Bill Nordhaus would have us be, 
 nor are we proceeding as fast as he would wish, but we are interested. As a 
 strong supporter of such approaches, I have been very frustrated over the years 
 because economists have been doing little since 1972 except declaring that 
 economic incentives are the superior answer. 
 
 I believe it, I am an economist and it makes sense to me. But since 1972 
 economists have done little but build theoretical models of hypothetical air 
 basins and things like that. They did very little to answer the nitty-gritty 
 questions of how do you measure these pollutants, for instance, and how do you 
 deal with some of the problems of interfirm equity, and things like that? 
 
 We have just recently started some studies to answer these nitty-gritty little 
 questions and they are not all that encouraging. In many cases, the more we 
 look at the application of economic incentives, the less they seem to accomplish, 
 
59 
 
 The advantages of economic incentives depend apparently on how clean you want 
 things to be. The old Delaware River Basin study, for instance, showed that 
 you got tremendous efficiencies from an incentive system as long as you did not 
 want the water to be too clean. 
 
 If you wanted the water to be very clean, that study showed there are almost 
 no efficiencies to be gained from the incentive approach. This is the same 
 thing being shown on some of the other studies we have ongoing now. 
 
 If you are going to choose very rigid ambient standards, you don't get the 
 tremendous efficiencies that you might originally expect. Nevertheless, I 
 think EPA is strongly interested in such approaches and I think we will continue 
 to look for opportunities to apply them. 
 
 But I have to agree with John Meyer that there isn't any scheme that should be 
 applied in every case. It has to be a mixed system. 
 
 MR . B YROM : Jerry, to that point, I think it is a very important thing. 
 It may very well be that the reason you don't get those efficiencies as you 
 move closer to perfection is one, the fee you would charge is not high enough 
 but probably more to the point is that the technology is not such that there 
 is a way to efficiently avoid payment of the fee. 
 
 Then I say to you, who says that regulation is proper when in fact the 
 technology is not there to do it effectively on behalf of society? 
 
 MR. CLARK : I guess what these studies are showing is that if you went to 
 a high enough fee, you would get the same technology whether you specified the 
 technology to begin with or set a high enough fee to drive everyone to the same 
 technology. That's all these studies are showing. 
 
 MR. JASINOWSKI ; Kerry Smith. 
 
 MR. SMITH : I think there is a question here of damages that one might 
 not want to lose track of. Just because the fees don't move us immediately to 
 the idealized technology, that doesn't mean that we would not want to poten- 
 tially use the revenues extracted from those fees to serve some desirable end 
 such as compensating the parties who are damaged. 
 
 The comments made here simply reinforce the discussion John raised originally. 
 
 When we think about moving from primary to secondary to tertiary treatment 
 
 levels with a static technology, we may not always induce an efficient response, 
 in static terms. 
 
 However, it is important to recognize that there are incentives set up for 
 future technologies that may meet those standards, and I think that lends some 
 support for the arguments Bill was raising. But I believe we have to be clear 
 on what are our short-term goals in terms of meeting specific objectives for 
 environmental quality or safety or whatever, what are our long-term goals and 
 what is the relationship in terms of the time interval between meeting those 
 in the selection of regulatory instruments. 
 
60 
 
 MR. BYROM : I am sorry but to your point, that high enough fees do the 
 same thing regulation does, I don't agree with that. I expected Bill to be 
 the guy to step up and argue with you on that because the amount of discharge 
 of effluent in a given water basin is not the same for everybody. 
 
 If I happen to be guilty of 4 percent of the discharge and you are guilty of 
 40 percent of the discharge and the fee is high and the technology is costly, 
 you might very well put in the new plant. But I would only proceed to pay 
 the fee and we would end up getting the ambient condition at least cost to the 
 society. 
 
 MR. JASINOWSKI : I think there are a number of questions with respect to 
 why incentives are not used more broadly. One of them has to do with budget 
 resources. It is not so much the case with fees, but at least it is with 
 incentives. 
 
 Alice, I wondered if you wanted to comment on that and also, in terms of your 
 broader background, add what you want on this question of alternatives. 
 
 MS. RIVLIN : I'm not sure that budgetary cost is a reason why incentives 
 are not more widely used. As I look around on Capitol Hill, I think the real 
 answer is that most congressmen are lawyers, not economists. They don't 
 think in terms of incentives. 
 
 I think we have seen an example of that in the energy legislation. That was 
 an economist's bill. 
 
 MR. HOUTHAKKER : No. 
 
 (Laughter. ) 
 
 MS . RIVLIN : The whole thing originally turned on taxes and incentives, 
 particularly in the parts dealing with coal conversion and the oil price 
 itself. I think congressmen were really mystified by this. What are you 
 doing here, they would ask. You are raising the price of oil through a tax 
 so people will use less oil, and then you are turning around and giving them 
 a tax rebate to maintain their previous purchasing power. This new way of 
 thinking created a lot of genuine confusion. 
 
 The same problem exists with regulatory incentives. If incentives are indeed 
 the right approach — and I come out of this discipline, too — a long educational 
 process will be needed before people think that way. I don't think the 
 problem is budgetary. 
 
 MR. JASINOWSKI : Thank you, Alice. Bill. 
 
 MR. NORDHAUS : One lighthearted thing and one serious point. Alice is 
 absolutely right. I remember the first day the crude oil tax was considered 
 by the Senate Finance Committee. Senator Ribicoff was sitting there and he said, 
 "As I understand this proposal, you raise taxes on oil and you give them away 
 back to the same people." He said, "For the life of me, I can't understand 
 what that's all about, it must be some economist who dreamed this up." 
 
61 
 
 But the serious point is one of design of our tax system. We have lots of 
 taxes on lots of different things. Whether it's capital gains taxes or labor 
 taxes or whatever, these are widely acknowledged to be ones in which there is 
 a disincentive to output, to efficient use of resources, to effort and so on. 
 Use charges or whatever you want to call them are about the only example you 
 can think of where, by imposing a tax and collecting revenue, this will move 
 the system towards more efficient utilization of resources rather than less. 
 
 PROF . MEYER : Bill, that's an empirical question. Take urban highway 
 congestion. I am reasonably convinced in the present state of technology that 
 to use user taxes as the primary means of achieving rationalization there, 
 costs of collection would exceed benefits. And there are lower cost ways of 
 doing it. 
 
 You have to look at each one and take a very hard look, it just can't be 
 generalized. 
 
 MR . CLARK : May I add another comment that is that the fastest way to 
 destroy an economic incentive system is to depend on its revenues for income. 
 In an economic incentive system, you actually want to reduce your revenues by 
 getting people to respond efficiently. 
 
 MR. JASINOWSKI : Allen, you've been trying to make a point. 
 
 MR. FERGUSON : I want to make a comment on incentives and I want to be 
 sure that before we leave this general topic, I have an opportunity to talk 
 about informational approaches but this might not be the right time to do that. 
 
 The only thing I want to say on incentives is that the chart and the paper 
 
 both treat subsidies as if they were in some sense co-equal with taxes. There 
 
 is an enormous difference between the two and I am not referring primarily to 
 the technical economic differences. 
 
 But if one were to opt for a policy of subsidizing the removal of hazards and 
 environmental contamination, that has a very different ethical and efficiency 
 base from taxing people who are doing the contaminating. One way to say it is 
 that the idea that a firm should be subsidized for removing a hazard can be 
 turned around the other way and say that those who have been subsidized in the 
 past by being able to use the environment as a free good are now to get a 
 second subsidy to pay it back to the rest of us. 
 
 I just want to make it clear that these are not symmetric kinds of considera- 
 tions. I want to lay a claim to commenting on information before we leave the 
 whole topic . 
 
 MR. JASINOWSKI : Allen, let me followup on that. I think that's an 
 important distinction. Are there any cases where the use of subsidies and 
 incentives on the tax side ought to be pursued? You make a case that we ought 
 not to help people who have used our resources badly in the past. Let me 
 raise the question, are there qualifications to that? Fletcher. 
 
62 
 
 MR . BYROM : I'm sorry but I disagree with the premise and I think this is 
 one of the unfortunate things in our society, that too many people without 
 thinking, and I suspect you did this without thinking, make that statement. 
 
 That those who have benefited in the past — the fact is that our life style is 
 based on the economic costs of the material goods we have produced. Unless the 
 particular body, company you are talking about made usurious profits, if their 
 return on investment was merely acceptable without having a charge for pollution, 
 then in fact we were all benefiting, all the users. 
 
 I think this is one of the mistakes we made and get hung up on emotionally 
 about this whole pollution question. The fact is that it is_ proper to decide 
 now that we want to improve the human condition by improving the quality of 
 the environment. 
 
 The fact is not that there were greedy, predatory managers and owners of 
 companies which in effect had pilloried the society, that's just not the case 
 and I am sure you know that. 
 
 MR. FERGUSON ; I feel as if I should make a rebuttal comment. I certainly 
 will not argue that I have thought about any of these problems — 
 
 (Laughter. ) 
 
 MR. FERGUSON : However, leaving that aside and emoting for a moment, let 
 me point out that the output of goods and services is not in fact a complete 
 reflection of economic well-being, and decisions as to how much to produce 
 reflect private costs as they have been experienced and much of the question 
 that we are dealing with is the internalization of social costs. 
 
 Much as you have thought about it, I would suggest that your premise is not 
 flawless. 
 
 The second thing is thinking in terms of the proposal to subsidize the airline 
 industry to remove the noisy engines. I think that's absolutely a clear case 
 where that industry and the consumers using it and everybody else directly 
 associated with it have in fact historically been subsidized by the people 
 vulnerable to aircraft noise, and it is clearly a very different kind of a 
 question as to whether subsidizing the air carriers is in some sense the mirror 
 image of a tax on them for the noise they produce. 
 
 MR . BYROM : I agree on subsidy but let's get this straight. The inter- 
 nalization of social costs result in a higher price. You seem to assume that 
 it reduces profits and I am assuming that it cannot. 
 
 MR. FERGUSON : I certainly do not assume that. 
 
 MR. JASINOWSKI : There is an in between point which is not going to be 
 resolved today. On the one hand, simply subsidizing firms for the misuse of 
 resources or inefficiency is a mistake. On the other hand, efforts to change 
 that on a broad scale do affect price. Prices which were lower in a previous 
 period are consumer benefits as well. John Meyer. 
 
63 
 
 PROF. MEYER : If I understood your question, Jerry, there may be one 
 example I can think of and that is the metal finishing industry and water 
 pollution. 
 
 The problem in that industry is that if you impose the water pollution controls, 
 you force a whole reorganization of the industry. 
 
 You would have to have a massive merger movement in order to keep costs within 
 bounds. This is a case where possibly you might say there is some justifica- 
 tion for subsidy or for a tax concession. 
 
 MR . JAS INOWSKI : Are there any other general comments on the question of 
 alternatives? We have obviously just scratched the surface and it deserves much 
 more attention, but is there anyone who would like to make a final comment be- 
 fore we attempt to cover this material generally? Professor Houthakker. 
 
 PROF . HOUTHAKKER : A historical point. The case for a tax approach was 
 argued at length in the Economic Report to the President in 1970 and '71 and was 
 the basis for the sulfur tax, a proposal that didn't get anywhere. The main 
 reason for this is that the informational requirements for correct tax levels 
 are higher than for standards . 
 
 At the same time, I think there is something to be learned from this and this 
 has to do with the example mentioned earlier. If you want really absolutely 
 clean water, then no amount of taxes probably will get you there, but is it ever 
 efficient to want absolutely clean water? 
 
 I think when we talk about the burden of regulation, then we are talking in part 
 about this, that standards are set that are in some sense unreasonably high in 
 the sense that people don't really want to pay the sacrifices needed to get 
 absolutely clean water. 
 
 It's obvious that you won't want to have water of suitable quality in all rivers, 
 once you know what the cost of that is. The tax approach, even though it has 
 practical limitations, does still give you a more correct answer. 
 
 As a related point to this, once a tax has been set, then you don't run into 
 the adversary problem you run into with standards. With standards, people say 
 we can't possibly meet it and they have every interest to lie. I think in 
 taxes that is less true. 
 
 The correct solution depends on these different informational requirements. I 
 feel there is a limited case for tax in certain instances. 
 
 MR. JAS INOWSKI : Allen, you wanted to make a comment about informational 
 techniques? 
 
 MR. FERGUSON : Yes. Providing information is again a very stock kind of 
 thing that seems to make excellent sense. I do not want to suggest in my 
 comments that it doesn't make sense. I just want to emphasize that there are 
 
64 
 
 fairly severe limitations, not only in terms of the information that is 
 provided, but in terms of the ability of consumers or whomever to use the 
 information. 
 
 It doesn't do any good to write on the menu that if you have bacon for break- 
 fast, you run a one-times-ten to the-minus-nine probability of getting cancer. 
 That just doesn't — ten to the-minus-nine — communicate an awful lot. It's not 
 just a matter of disseminating facts. It's a matter of consumers being able 
 to assimilate them. 
 
 The second thing is that there is a whole array of economic activities or anti- 
 economic activities in the form of persuasion which, if they do anything, and 
 that is clearly a question, undercut the basic premises of market economics by 
 making the response of the consumer a function of the activity of the supplier. 
 
 Unless some kind of governmental informational strategy gets at that, you are 
 leaving a lot aside. Then there is the more straightforward problems of mis- 
 leading advertising or misleading PR and so on. Those are all a part of the 
 information problem and they are not treated by disclosure kinds of considera- 
 tion, or kinds of action. 
 
 MR . JAS INOWSKI : Let me now cut off this discussion because it is some- 
 thing we will want to pursue further. We will obviously not resolve it today. 
 
 What I would like to do in the remaining 45 minutes is to take on the difficult 
 task of trying to see where we have some agreement, if not consensus at least 
 plurality, in terms of what should be the future directions for research in 
 action by this Department and the Administration more broadly. 
 
 I feel that with your help and your good faith, we will be able to make some 
 progress. Let me try to go over these items one at a time and after each one, 
 have the group correct me or modify it as you will. 
 
 It seemed to me in the first instance that there was an increased willingness 
 on the part of business, the regulatory groups, the government broadly, and 
 others to find common ground in working on regulatory problems. Given the 
 impacts of regulations and the important goals that we are pursuing, regulation 
 has not received sufficient attention in the context of economic policy. There 
 is a desire to work together — frankly more than I expected — on the question of 
 improving the analysis of benefits and costs and other impacts. 
 
 We saw it in some of the exchanges between Fletcher Byrom and Eula Bingham and 
 others. Am I overstating that or is that a fair assessment of the sense of the 
 group? Eula will get the transcript so she can modify it to the extent she 
 disagrees. 
 
 Having said that, and I think that is an important movement in spirit, we then 
 went on to the more difficult question of how to improve cost-benefit estimates 
 and other impact measurements. I thought there was general agreement that the 
 data was inadequate and there were biases in the data as Mark Green pointed out, 
 both from business and as I indicated, from the various agencies of government. 
 
65 
 
 I think we did have some important agreement as to how to move forward. There 
 was general agreement in the morning session that we needed to move ahead on 
 both fronts. Further, we ought to get more consistent or compatible cost 
 estimates. 
 
 Although the difficulties are significant, a consistency across the different 
 kinds of cost studies is one important direction in which to move. I think 
 there was also agreement that we need to improve benefit estimates. As Alice 
 indicated and Eula agreed, if we could not measure benefits in money terms, we 
 ought to try to measure it in some other terms. 
 
 John Meyer made the important point that we ought to look at cost-effectiveness 
 analysis in many cases because cost-benefit analysis is really too ambitious. 
 Eula Bingham and others made the point that the agencies needed additional 
 resources to work on this and that they needed help from both the private sec- 
 tor and some of the non-regulatory agencies of government. 
 
 Henk Houthakker pointed out that the Department of Commerce can do a better 
 job on this because we have a lot of the data and statistics here. Finally, I 
 thought Allen Ferguson made an exceptionally good point about distinguishing 
 between different kinds of benefits and accordingly between different levels of 
 benefit estimation. Those are useful directions for us to 'pursue. 
 
 One of the things we did not do justice to today — it was just a matter of time — 
 was that we did not go beyond the estimates of costs and benefits into the ways 
 in which regulations affect productivity, economic growth, international trade 
 and inflation. That is something that some of us have worked on and an impor- 
 tant subject for future research and a future meeting. There has been some good 
 work on that but there are many unresolved questions. 
 
 An important priority for the future would be to pursue those areas. Yes, Mark. 
 
 MR. GREEN : I suspect there was a consensus for a case by case study of 
 trying to perfect the data to make more rational cost-effectiveness judgments 
 at the agency level. 
 
 Beyond that, to do it generally nationwide or industrywide could lead to the 
 top down problem some of you mentioned. And it could lead to arbitrariness. 
 Imagine the head of an auto safety agency saying — I have a regulation here for 
 better bumper standards, by which consumers save more in the after products 
 market than they would spend in buying the car originally. Then the government 
 would close the door and say, whoops, you are the program over the arbitrary 
 $10 billion limit, even though you can demonstrate that this regulation is 
 efficacious and efficient. 
 
 Also politically, I can't imagine a president every week desiring to be the 
 final arbiter of the brown lung threshold. It's not something that I think 
 presidents have done, perhaps for rational political reasons. 
 
 MR. JASINOWSKI : Mark, I agree with you and I was going to take up the 
 question of who does the various analyses under centralization versus 
 
66 
 
 decentralization as a second point. I don't think we had quite the same 
 agreement on it. I was just saying that the area in which we had some agree- 
 ment was the ways in which we could try to improve cost-benefit and cost- 
 effectiveness analysis, apart from the institutional arrangements. 
 
 MR. GREEN : One more point. Lucy mentioned that one approach envisioned 
 is this Department doing a cost aggregation and this might inspire better 
 studies of the benefits. 
 
 MS . FALCONE : The Commerce Department could not run this budget. I think 
 I said it was clear we couldn't do it. 
 
 MR. GREEN : The mere compilation of costs could lead to more studies of 
 the benefit side. I think it more likely today for it to entrench the hostility 
 against health-safety regulation. 
 
 As you see in our bibliography, there is apparently one study in American 
 history of all the costs of regulation, done by Mr. Weidenbaum, and it has been 
 cited and recited and recited. I think any aggregation of pure costs would 
 join that study to be used as a bludgeon against specific regulations. It 
 could be a demogogic tool. 
 
 MR. JASINOWSKI : Let me take that point one step further. We never did 
 reach a consensus about the appropriate focus for further cost investigations. 
 One alternative posed was to put more emphasis on the impact of costs at the 
 firm and industry level. 
 
 A second was to go on a case by case basis as Mark has suggested with respect 
 to particular regulations. Finally, there were those who suggested that we 
 needed to try to get a handle on the total cost. Are there any suggestions 
 from the group beyond what Mark has said about future cost priorities? Alice. 
 
 MS. RIVLIN : I would suggest that the priority should not be the total 
 cost. That is obviously a large number and it doesn't matter very much exactly 
 what it is because decisions are not made about total regulations. In general, 
 I believe — and this applies to several different subjects discussed here — that 
 one should take a manageable set of regulations or a manageable set of problems 
 and look at the alternative ways of going about handling them — getting back to 
 the cost-effectiveness point. Costs are needed at this more disaggregated level 
 and to strive for consistency across large areas does not bear much relevance 
 to the real world. 
 
 MR. JASINOWSKI : Toby. 
 
 MR. CLARK : I would agree with that, being a perpetrator of too many cost 
 estimators myself. I find them not all that useful. But you would be surprised 
 when you look into these estimates that one of the big problems is that nobody 
 is using the same definition of what is a cost. 
 
 We have set up a task force to try to develop consistent definitions of cost 
 so at least we are using the same types of numbers. Even little steps like 
 that are important. 
 
67 
 
 MR. JASINOWSKI : Any other suggestions? Kerry Smith. 
 
 MR. SMITH: I was going to suggest that focusing on costs alone can be 
 misleading. I think we can get some information on priorities if there is an 
 objective that can be articulated in terms of imposing a certain amount of 
 costs on the economy in total as associated with regulations that may differ- 
 entially impact on other aggregate policies. 
 
 One way of prioritizing regulations is to pay some attention to the benefits 
 associated with those. I don't think they need to be considered in isolation. 
 
 MR . JAS INOWSKI : I agree with you and I hope to cover that as we move 
 along. 
 
 The next area in which there was agreement, with some modification from 
 John Meyer to explain why there was so much agreement, is that economic regu- 
 lation is an area where we do know enough to move ahead in most cases. 
 
 John made the very interesting point that it is not hard to know enough 
 because the benefits in so many cases are near zero and the costs are quite 
 large. I think that was another area of agreement among the group. 
 
 Having covered a number of areas in which there was agreement, let me move on 
 to some in which we still have resolutions to make. There was considerable 
 differences of opinion about the extent to which tradeoffs between benefits 
 and costs were useful. 
 
 The point was made by Alice and by Eula Bingham that it is difficult to make 
 a tradeoff between life threatening elements and particular costs. No one had 
 an answer to that which is not surprising because we have not had a good answer 
 in the past, although Prof. Houthakker made the argument on the other side that 
 there are limits even to that. 
 
 Even though there was not a clear resolution of that issue, some progress was 
 made. From the comments Eula Bingham made, she indicated that there was some 
 need to take benefits and costs into account and that there was a difference 
 between life threatening and other actions. 
 
 There are other unresolved issues regarding the question of tradeoffs which 
 we are not going to solve today and which deserve further investigation. I 
 have listed two. One is the degree of Presidential authority with respect to 
 making these tradeoffs. There were views on both sides, but I did not sense 
 any clear resolution of that. In part, it is still a legal and political 
 question. 
 
 The second relates to the mandates of Congress and the way in which the 
 mandates have, at least in an initial sense, resolved these tradeoffs. Beyond 
 that, it is ambiguous as to how much further flexibility there is although in 
 certain regulations, there is a great deal of flexibility. 
 
 That is my summary of a very difficult area, and I am sure some of you might 
 want to comment or modify what I have said. Toby. 
 
68 
 
 MR. CLARK : You touched an issue which has been bothering me, an issue 
 implicit in some of the comments made here and in a lot of other comments I 
 have heard over the last few months . 
 
 This is the tradeoff between actions which are directed at protecting health 
 and those protecting amenities. EPA, as you probably know, is emphasizing 
 health protection. That seems reasonable and I think most of the people around 
 this table would say that that is a first priority. 
 
 But I am frankly quite puzzled about what EPA should do about the results of 
 public opinion polls which indicate a very high preference for amenities as 
 well. There is as much support for controlling water pollution, which is 
 primarily an amenity issue, as there is for controlling air pollution, which 
 is primarily a health problem. 
 
 Many people consider solid waste to be the worst environmental problem and 
 frankly I don't know how to deal with that. How can economists effectively 
 incorporate public opinion into analyses. Economic theory is based on the 
 theory of consumer preference, and yet we don't have any way of incorporating 
 this consumer preference into the calculations. 
 
 MR . J AS INOWSKI : Let me move on with the summary. We then discussed a 
 series of ways in which we could improve the general management of the regula- 
 tory system. We focused on three areas. 
 
 The first was improvement at the agency level. The second was general central 
 review and oversight. The third was institutional mechanisms such as the 
 regulatory calendar and regulatory budget. 
 
 I sensed considerable agreement about the need to improve regulatory management 
 at the agency level. There was acceptance, and you may want to speak to this 
 further, Toby, on the President's Executive Order. Eula Bingham made the point 
 that it can do some good things and we ought to leave it alone and work with it 
 at this point. 
 
 Others made the argument that maybe it ought to be expanded to independent 
 regulatory agencies. In addition, there are ways to improve the analysis at 
 the agency level and to streamline the process. I did not sense disagreement 
 on that, although narrowing the gap between the promise and the reality will 
 require a considerable amount of work. 
 
 Moving on to the second area, we ran into a significant degree of tension 
 within the group about the extent to which there ought to be some central 
 oversight with respect to the activities of the regulatory system. The 
 Regulatory Analysis Review Group seemed to be accepted to a considerable 
 degree as a way to improve analysis as long as it did not impose its will 
 with respect to tradeoffs. 
 
 But as we moved further in terms of questions of the President's rights and 
 the extent to which the Executive Office would impose itself on the process, 
 there was clear tention within the group with Mark Green, Eula Bingham and 
 
69 
 
 others saying it would result in duplication; it would politicize the system; 
 and it would have other effects which either were unnecessary or were harmful. 
 
 Others, including Bill Nordhaus indicated that there was a need to maintain 
 some balance so that the analysis was honest and that control or coordination 
 of the system overall was important. That is as well as I can summarize that 
 discussion. I wondered if you would want to modify the summary in any impor- 
 tant sense? 
 
 MR . CLARK ; I would like to make a comment about the first part of your 
 statement. EPA thoroughly supports the Executive Order. As a matter of fact, 
 we have claimed it is really modeled after the process we had already instituted 
 internally. 
 
 I am not sure that our enthusiasm is shared by all the agencies, but I think 
 basically people are in favor of going along the route set by the Executive 
 Order. The Executive Order, of course, set up two processes. One for 
 catching new regulations and one for reviewing old regulations. And this leads 
 me back to the question you asked at the beginning of this session — should 
 economic regulatory agencies be included as well. 
 
 Setting up the first process — that directed at catching new regulations makes 
 complete sense. You want to stop bad ideas before they catch hold. And this 
 process necessarily will apply primarily to the health and environmental 
 regulations for these are the programs currently being implemented. But when 
 you go back and review old regulations, particularly if you are talking about 
 something like a regulatory budget, I think we would feel very strongly that 
 the economic regulatory agencies ought also to be involved in this effort. The 
 whole price should not be taken out of the social and health regulations. 
 
 MR. JASINOWSKI : I should add that Henk Houthakker made the point with 
 respect to the whole question of balance in the President's authority that it's 
 really a personnel question and that the President appoints these people and he 
 ought to appoint the right people . 
 
 Moving on from the question of some general oversight, we then got into the 
 more difficult question of institutionalizing a means to do that. I believe 
 the consensus was that the budget is an interesting idea whose time has not 
 come in terms of immediate implementation. 
 
 It is a long-term project with a great deal of problems to be resolved, 
 including: who would do it, how adequate cost estimates are obtained, what 
 should be the role of benefits, should the budget be purely an informational 
 system or should it be a control system? 
 
 Although we shed some light on it, principally the remarks of the group were 
 to instruct the Department of Commerce and others interested in this to look 
 very carefully at the hard questions that still remain and pursue the budget 
 in that light. 
 
 Any comments on that? Henk Houthakker. 
 
70 
 
 PROF . HOUTHAKKER : I would just like to say the budget idea is a very 
 interesting one even though not ready for implementation. It probably should 
 be pursued by the private sector before being pushed by a government agency, 
 as has been done with other statistical and budgetary devices. 
 
 A lot of research and discussion is needed before the government can commit 
 itself. 
 
 MR. JASINOWSKI : John Meyer. 
 
 PROF. MEYER : Picking up on that, if it is to be implemented, I think on 
 the basis of the discussion that I have heard, it ought to be done in a few 
 select areas, referring back to what Alice said, and it ought to be pursued 
 all the way through. 
 
 Again, I think Mark made some good points and several others here, too, that 
 if you only get part of the costs, it can be very misleading and if you don't 
 do something about properly measuring benefits, it can be misleading. I think 
 it would be far better — even if it is messy and admittedly it probably will 
 be — to try to do as comprehensive a job as you can in a few test areas rather 
 than trying to do only part of it, say only the direct costs, across-the-board. 
 
 I also think you get information that is potentially more useful in identifying 
 key trouble spots. My hypothesis is that in each one of these, we are usually 
 likely to find a key tradeoff or trouble spot when we get into the details. 
 
 MR. JASINOWSKI : Alice. 
 
 MS. RIVLIN : I would like to underline that and make a further point. As 
 I have listened to this discussion all day, I have been struck by the resem- 
 blance to discussions about the expenditure budget 10 or 15 years ago. The 
 issues are the same — value of human life, consistent treatment of costs, and so 
 forth — and I think the dangers are the same . 
 
 The danger then was that the government would rush into a great comprehensive 
 system of analyzing public expenditures, which indeed it did in the Planning, 
 Programming, and Budgeting System (PPBS) before anyone figured out how to do 
 this. I think that the regulatory budget although it is an interesting idea, 
 has the same danger. It is attractive to create a huge system, put everything 
 in it, and figure that somehow the problems will all shake out. With a compre- 
 hensive system, we would overload ourselves with information and with low- 
 quality analysis. 
 
 The other danger, if we ever do a regulatory budget, would be to have it done 
 every year. We should learn a lesson from the history of the expenditure 
 budget. For heaven's sake, don't do it every year. It is hard for me to 
 imagine anything sillier than reviewing old regulations every year. 
 
 MR. JASINOWSKI : Thank you, Alice. We should add the comments of Allen 
 Ferguson with respect to the emphasis on what we really want in terms of goals 
 rather than just the costs as part of the regulatory budget. 
 
71 
 
 I should say that with respect to the Department's own activities, we are 
 proceeding on a pilot basis. We expect to pick out two or three areas and to 
 analyze those and to do so in a way that is selective and limited. 
 
 We hope within the next year to advance that in the context of at least a 
 special analysis to the budget for selected areas. I think that is doable and 
 I would put that positive note on it with respect to the Department's own views. 
 
 There are other topics which we never had a chance to discuss, and I would 
 like to take these up for a few moments . 
 
 One is the question of sunset review which goes in part with Alice's point of 
 reviewing regulations at some point over a period of years. There are a number 
 of legislative proposals to attempt sunset review for regulatory action. If a 
 regulatory budget encounters difficulties, what are the advantages of moving 
 ahead with a regulatory calendar, a proposal which is not as broad and all- 
 encompassing as a budget but attempts to find out what proposed regulations are 
 coming forth next year, get the best cost estimates and best benefit or goal 
 view of them, and establish priorities. 
 
 I wonder if we could speak to those two issues at least briefly to see what 
 guidance you would provide us with in terms of future action. Would anyone 
 like to comment on the sunset review proposals? 
 
 MS. RIVLIN : I am attracted to sunset review for regulation, but I think 
 it should be viewed simply as a mechanism to force the executive branch and/or 
 the Congress, presumably both, into a periodic review of various areas of 
 regulation. 
 
 There is a sense of urgency in the warning: if you don't do this, everything 
 will stop; your regulations won't count anymore. If, however, there were any 
 danger of that happening in an area in which regulation is important, the 
 Congress would find quick legislative ways to fix the problem. Sunset review 
 is thus really a gimmick, but it may be a useful gimmick to force some periodic 
 reconsideration of all regulations on a flexible, sensible schedule. 
 
 MR. JASINOWSKI : Dick, do you have any thoughts on the sunset review 
 proposal? 
 
 MR. LESHER : I agree pretty much with what Alice just said, but I would 
 go one step further and say I think it is coming regardless of what we decide 
 around this table. It is something whose time has come, both in the regulatory 
 process and in the broader based budget items of the Federal government. 
 
 The premise that we all begin with is that we are beginning to reach up against 
 limitations to the point where you have to make a tradeoff analysis. Sunset is 
 one way of forcing the issue and I think it's much more than a gimmick. I 
 think it is a concept that forces decisions. 
 
 MR. JASINOWSKI: Allen. 
 
72 
 
 MR. FERGUSON : I would make the comment that a great deal depends upon 
 the definition of regulation. It is clear that the idea of review regulation 
 by regulation is ludicrous. At the same time, I am very concerned about again 
 focusing an attack on quality of life regulations. 
 
 Clearly, I would be all in favor of a sunset provision on all import quotas and 
 all export subsidies and on the stock cartel regulators. To repeat, those are 
 areas where we know what we are doing, where we know how the market would work 
 if it were left to itself. 
 
 Quality of life regulation is not an area where we can rely on the market. I 
 would say two things, one if there is to be regulatory sunset provision, it 
 should cover a very wide range and it should do it in a fairly broad way rather 
 than specific regulation by specific regulation. 
 
 MR. JASINOWSKI : It would seem to me, Allen, that even though we may know 
 what we are doing better in some of these areas, periodic review and evaluation 
 of all regulations is something we all agree ought to be done but it's a ques- 
 tion of doing it correctly. Am I overstating it? 
 
 MR. FERGUSON : We live in an area of vast uncertainty. If you know there 
 is something you can do with a net payoff, I think one can make a strong 
 argument for doing it. You cannot review all regulations, that is a will-o'- 
 the-wisp. 
 
 Basically what I'm saying is the obverse of the regulatory calendar. It's 
 a deregulatory calendar and I think it is sensible to begin — I really would 
 argue a little more sophisticatedly than I have. One, begin where you know 
 what you are doing and two, on both sides of this, the regulatory calendar 
 and the deregulatory calendar, look for the big issues, the big benefits, the 
 big costs and don't mess with all the little ones. 
 
 MR. JASINOWSKI : Dick. 
 
 MR. LESHER : I think Allen made the case for messing with all regulations. 
 If he said we can't review all regulations and at the same time implies that we 
 must live with all of those, there is a certain contradiction in that statement, 
 
 I believe OSHA right now, for example, is in the process, a two-year process of 
 reviewing all regulations and I think that's an ongoing responsibility of each 
 agency. If you go to one of these overview organizations, then perhaps I would 
 agree with Allen, you can't mess around in there with each and every detail but 
 you do have to have some universal review of the whole process. 
 
 MR. JASINOWSKI : Mark Green. 
 
 MR. GREEN : The goal of sunset is to compel the executive branch and 
 executive oversight committee to review how a program or agency is doing. I 
 support a sunset of congressional committees rather than agencies. 
 
 That is, the budget of a congressional committee cannot be spent unless that 
 committee has engaged by a date certain in a kind of zero based thorough 
 
73 
 
 periodic analysis of an agency program or agency. This would mean that if 
 nothing were done, the committee would expire rather than the agency. 
 
 There is one version of sunset to permit an especially hostile and powerful 
 committee chairman, suppose Rep. Jamie Whitman, to initially pass on the FTC 
 sunset. I would be pretty nervous if I was the Federal Trade Commission. 
 Such a sunset approach could lead to the demise of agencies simply because 
 the clock has run, rather than due to a thorough analysis. 
 
 MR. CLARK : I was going to make a comment on the sunset provisions . This 
 again is one of the regulatory reforms EPA has instituted internally already. 
 We have said that we will develop a process for reviewing regulations in effect. 
 
 I have not observed that process operating. I think the problem is, and this 
 is one we have to keep in mind all the time , that there are substantial oppor- 
 tunity costs in any such effort. The more effort we spend looking at what we 
 have already done, the less effort we can spend looking at what we are doing 
 now and doing it better. That's one opportunity cost. 
 
 The other opportunity cost is that the more we delay what we are doing now the 
 longer society will suffer from what we are trying to correct. There is a 
 problem in this tradeoff between looking at the past regulations and doing a 
 better job on future ones. 
 
 The final point I would raise is that I suspect if we seriously talk about 
 substantially changing our regulations, the business community might well end 
 up complaining. The argument would be, we have built all these plants with 
 this old regulation in effect, and if you reduce the requirement, you will be 
 giving new plants a competitive advantage over us and that's not fair. That 
 is the congressional notion of equity. 
 
 MR . JASINOWSKI : Fletcher, would you like to comment on that specific 
 question or more broadly on the question of sunset review? 
 
 MR. BYROM : Not really. 
 
 MR. JASINOWSKI : We've worn you out, really. 
 
 MR . BYROM : I think everything has been said that is pertinent to the 
 discussion. 
 
 MR. JASINOWSKI : I think you've all been very patient, very productive. 
 Secretary Kreps, myself, and others thank you. I only have one further ques- 
 tion and that is, what would be the view of the group regarding the continuation 
 of a seminar such as this, perhaps quarterly or at some other interval? 
 
 Is there any feeling that we ought to do this on a regular basis or should we 
 just go off and work quietly on these various problems? 
 
 PROF . MEYER : One suggestion. I do admit to hesitation because I realize 
 there are hazards in it. But it might be useful to think of experimenting 
 
74 
 
 with some groups that are a bit more specialized and trying to see if there 
 is some way of institutionalizing (while not creating a new set of dangers) 
 a process to get people to talk about particular tradeoff problems. 
 
 MR. BYROM : I think that one of the things that is so essential, this is 
 nothing original here, but we need to have dialogue on these things. I just 
 think that somehow or other, we have to find the means whereby we can break 
 down the adversary characteristic of the advocacies that we have and get to 
 the point where we try to make the society work. I don't know how to do it 
 except to sit around and talk. 
 
 MR . JAS INOWSKI : Any other comments before we close? 
 
 MR. LESHER :* I would followup on John's point. I think there is a great 
 deal of specialized work going on and you can bring these folks together and 
 pull together some of that research and see what you have agreement on and what 
 you have disagreement on and then a different type of group to come together to 
 look at these broader based policy issues. 
 
 Following up on what Fletcher just said, I think the Department of Commerce is 
 due a word of thanks for convening the meeting. For too long, it has been a 
 case of an adversary relationship and I think that increasingly, we agree on 
 the goals and the questions are the most effective means to those ends. 
 
 When you get to that stage, you can put aside the adversary relationships to 
 some extent and begin to come down to these basic questions about how to get 
 there. Meetings of this kind are most worthwhile. 
 
 MR . J AS I NOWS KI : On that positive note, we will end and we thank you very 
 much. 
 
 (Whereupon, the meeting was adjourned.) 
 
 * Submitted by Mr. Lesher as an Appendix to the Transcript of Proceedings : 
 
 While there is a long way to go before we will have satisfactory data on 
 benefits and the total costs of regulation needed for a fully-developed regu- 
 latory budget, we think it is desirable and possible to take some more limited 
 steps which might improve the Executive decisionmaking, as well as the public 
 discussion, on governmental regulatory activities. For example, even though 
 there are major hurdles before we have good data on compliance costs and 
 induced costs, there is some value and no worthy objection we are aware of in 
 producing a recapitulation and analysis of the budgetary costs of all of the 
 government's regulatory activities. Similarly, while we are a long way from 
 having adequate benefits data on regulatory activities, it could be very 
 useful if each regulatory agency were to pull together its best estimates and 
 judgments about the compliance costs and the benefits (and the beneficiaries) 
 of the regulations they propose and enforce . We believe such initial steps 
 could be very useful in advancing the dialogue and the decision process in a 
 constructive way. 
 
75 
 
 BACKGROUND PAPERS 
 
77 
 
 PREFACE TO BACKGROUND PAPERS 
 
 Participants in a Department of Commerce seminar on the 
 subject of regulatory reform were provided with several 
 background papers as points of departure for the day ' s 
 discussion. Though not offered as examples of extensive 
 research or original thinking in this field, the papers 
 underscore some of the issues of concern. 
 
 The call for regulatory reform arises from a suspicion (in some quarters 
 a conviction) that the Nation's economic interests are not being well 
 served by the present body of government regulations. The public discus- 
 sion of regulatory agencies, their functions and policies is essentially 
 a dialogue on the best ways to arrive at a number of widely agreed-upon 
 goals. It is also, implicitly, a reexamination of the ways in which 
 business entities behave under various kinds of guidance, constraints, 
 admonition, incentives, and penalties. 
 
 The debate in this country is no longer over competitive markets, product 
 safety, livable environments, constructive use (including nonuse) or vital 
 resources, and removal of hazards from the workplace. Within tolerances, 
 these may be taken as settled issues. The argument is about our methods 
 to achieve the desired objectives through Federal intervention. 
 
 How much are we willing to pay and who should pay for what? Are 
 prescriptive rules in every case the most effective, least burdensome 
 method of getting results? Are there perhaps more subtle, indirect levers 
 that might be applied? Above all, what are the true costs of regulations 
 to set against their undoubted benefits, and has the time not arrived for 
 a system of accounting to guide policymakers in these matters? 
 
 The analytical tools brought to these questions will do much to set the 
 tone of our inquiry. If, as some observers suggest, the heavy compliance 
 costs borne by industry are largely the assumptions of burdens previously 
 shouldered by the public, then in a sense they are not costs at all, or at 
 least not new costs. If these expense items are mainly a transfer, then 
 regulations involve philosophical and political choices. On the other 
 hand, if regulations are viewed as instigators of totally new costs of 
 such size as to become a major propelling force in inflation, or a deter- 
 rent to productivity and economic growth, the subject deserves careful 
 economic analysis and sober consideration wherever fiscal policy is 
 formulated. Such would certainly be the case should preliminary studies 
 indicating compliance costs for U.S. industry of the magnitude of 6 to 8 
 percent of Gross National Product prove substantially correct. 
 
 It was in this context that the Department of Commerce, via its Office of 
 Regulatory Economics and Policy, commissioned a series of studies (of 
 which these four are short-term examples) of the effects of Federal regu- 
 tions on firms, sectors of industry, geographical regions, and the economy 
 
78 
 
 as a whole. The Department also began exploring the concept of the 
 "regulatory budget" to anticipate, if possible, the problems that might 
 be encountered in setting up an accounting procedure somewhat parallel 
 to that of the national budget, and to consider its potential usefulness 
 to the executive and legislative branches. 
 
 What we now have on hand are surveys of research already completed on the 
 effects of government regulations, on the costs and benefits at various 
 levels and divisions of industry. We are beginning to find ways of 
 obtaining national aggregate figures, and we are making a start in assess- 
 ing the longer term implications of regulations on industrial structure, 
 location and technological change . As the magnitude of the compliance 
 burden becomes more and more apparent, we must give more attention to regu- 
 latory alternatives. And our work on the regulatory budget is presently 
 examining, conceptually, a comprehensive regulatory review process which 
 might possibly be integrated into the existing annual budget process. 
 
 One of the clearest conclusions to emerge from a survey of existing 
 literature on the costs and benefits of government regulations is the 
 fact that research on this subject is in its infancy. Respectable work 
 is indeed to be found, but very little of it is mutually compatible. In 
 an annotation of about 40 current quantitative studies, one author 
 (Synergy) felt obliged to caution readers against making comparisons of 
 the data presented in the tables, because the methodologies, data bases, 
 and theoretical and analytical problems differed from study to study. 
 The estimation techniques ranged from the most sophisticated macroecono- 
 metric forecasting models available to informed guesses. 
 
 And yet, if only for sheer dimension, there were startling conclusions. 
 One research foundation study placed the economic loss from regulation of 
 surface freight as high as one-third of the total income generated. A 
 Federal commission estimated the costs of required paperwork at more than 
 $100 billion annually, divided about equally between the public and private 
 sectors. An analysis of air pollution abatement costs between 1976-1983 by 
 a private consulting firm foresaw an investment of $53.6 billion, with 
 annual operating and maintenance expenditures of $123.4 billion. A study 
 of the cost of implementing federally-mandated social programs at colleges 
 and universities showed an increase, over a ten-year period, from a negli- 
 gible share to as much as one-eighth to one-quarter of the general admin- 
 istrative budgets of the institutions surveyed. On and on the figures 
 reverberate — exaggerated, perhaps; duplicative and overlapping, possibly; 
 but certainly suggestive of substantial costs. 
 
 It is argued that compliance costs of such magnitude must not only cast 
 shadows across the marketplace in terms of investment, product development, 
 profitability, and inflation, but also must have an effect on industrial 
 location decisions. Are cities and regions being aided or victimized? It 
 is reasoned, but hardly demonstrated, that the maintenance of environmental 
 integrity may be less burdensome in one urban area than in another. We do 
 not know as yet whether regulations by themselves bring about differential 
 compliance costs here or there so significant as to be measurable factors 
 in the birth, death, expansion or movement of U.S. firms. Intuitively it 
 
79 
 
 would seem that regulations should have an effect on urban and regional 
 economies. Yet, a recent review (Consad) investigating the impact of clean 
 air requirements on actual or prospective industrial location decisions 
 failed to reveal any clear trends. The rationale of the Clean Air Act is 
 such that it is likely to have substantial locational effects, but it may 
 be too early to discern such regulation-induced changes. 
 
 Locational decisions are often such complex ones that a firm might find it 
 next to impossible to assign compliance costs their proper weight amid 
 scores of other reasons for staying or leaving. There are undoubtedly neat 
 balances to be struck: the cost of remaining in the old location requiring 
 heavy investment in allowably antiquated facilities versus the cost of 
 investment in new technologies. 
 
 Behind such dilemmas lies the largely unexamined proposition that there may 
 be more effective, less burdensome ways of rescuing the environment, pre- 
 serving the marketplace, assuring product safety, and keeping citizens 
 healthy than through the enforcement of literally tens of thousands of 
 government rules. Rules to be written, interpreted, administered, litigated 
 over, revised, superseded, and endlessly published. For the past generation, 
 social scientists have been asking whether it is possible that standards 
 could be sustained with more loosely held governmental reins, whether some 
 alternatives to regulations as we now know them could achieve the desired 
 goals with considerably less strain on all parties. Are there indeed areas 
 of industrial activity which could be better channelled by a combination of 
 incentives, penalties, fees, taxes, subsidies, direct compensation to 
 injured parties, permits, educational programs, disclosure, or other ways? 
 Agreement is already widespread among professional economists that price and 
 entry regulation in inherently competitive industries leads to inefficient 
 utilization of resources, higher than necessary prices, and untapped market 
 potentials. 
 
 Many critics of the regulatory approach point to the waste which results 
 when uniform requirements must be met in circumstances where there are 
 notable differences in conditions. Some are especially concerned by oppor- 
 tunities lost through uncertainty, inflexibility, and the slowness of regu- 
 latory agencies in issuing or modifying rules. Others deplore regulatory 
 impairment of entrepreneurial initiatives that might lead to productive 
 enterprises. All abhor the red tape, the nuisance, and the invasion of 
 privacy. Above all, they feel that problem-solving toward social ends can 
 best be done on local grounds rather than by a remote bureaucracy. 
 
 We do not know if alternatives to regulations will work; we have never 
 tried them on any significant scale . Some observers insist that almost any 
 alternative could be made to work, as well as existing procedures. As an 
 illustration, the typical community rarely enacts laws prescribing the 
 cutting of front lawns, but most lawns do seem to get cut. Other commenta- 
 tors suggest that Federal regulations merely hasten a process that would 
 eventually take place. Yet, it is precisely this slowness in responses to 
 society's pressures that has provided the impatient impetus for heavy 
 government intervention. 
 
 The dominant impression left by our regulatory system is that it is not a 
 system, that it is an aggregation of older and newer controls, assembled 
 
80 
 
 in an ad hoc, add-a-part manner, for both presently needed and obsolete 
 purposes. If its effect on the economy has become so great that it keeps 
 company with defense, health, and education expenditures, the time is ripe 
 for considering a mechanism such as a regulatory budget, to rationalize 
 the regulatory process. One of our studies (Data Resources, Inc.) is tied 
 to the assumption that a regulatory review process would induce greater 
 sensitivity to total costs and provide at least the gateway to an eventual 
 regulatory management system, should that prove desirable. 
 
 The one great impediment to a budget-like accounting of regulatory compli- 
 ance costs is the difficulty of obtaining accurate information on costs. 
 Cost information can only come from the regulatory agencies involved or 
 from industry itself. One can anticipate extraordinary differences of 
 opinion and interpretation in such attempted reckonings . 
 
 In any case, there is often a fine line to be drawn between certain devel- 
 opmental or modernization expenses which might or might not have been 
 incurred by industry, absent regulations. Without regulations, what would 
 today's automobile look like? What other kinds of investments would the 
 automotive industry have made in the past decade had it been free to build 
 any kind of a car it wished? If we knew, we would have a much clearer 
 understanding of regulatory burdens and benefits. Often Federal agencies 
 and private industry may understate or overstate compliance costs. Our 
 problem is to find a referee. 
 
 No discussion of compliance costs can be very useful without consideration 
 of offsetting benefits. It is generally the case that the benefits of 
 regulations are more diffuse than their costs. An improvement of air and 
 water quality may be slowly perceived, a decline in employment recognized 
 overnight, while the connection between such benefits and costs — if there 
 is a connection — may be difficult to establish. 
 
 Clearly, a new set of regulations originates in the anticipation of benefits, 
 an expectation that intolerable injuries will cease, or the desire to prevent 
 some disaster from occurring. The regulatory impulse is benefit-oriented, 
 and it often presents the economist with value-based conflicts or assertions 
 that his discipline is ill-equipped to deal with. Conversely, the affixing 
 of price tags on social goals confronts the consuming public with tradeoffs 
 it is inexperienced in facing. We may be left in the position of the over- 
 enthusiastic shopper who has paid "too much" now for things he will be happy 
 in the long run he purchased. 
 
 Our existing regulatory institutions are the result of prolonged considera- 
 tion and painstakingly arrived-at decisions in past years through legislative 
 and executive interaction. The methods (and underlying philosophies) which 
 were mandated to regulatory agencies represented, at the time, our best solu- 
 tions to the problems needing correction. Even in the light of changed 
 economic and social circumstances, and new national perceptions, the present 
 missions, procedures and relationships of these agencies cannot and should 
 not be casually or abruptly changed. We need to proceed with both care and 
 resolution to achieve consensus on how regulatory issues are to be dealt 
 with in the future. 
 
COSTS AND BENEFITS OF REGULATION 
 A SURVEY OF STUDIES 
 
 Prepared for: 
 
 U.S. DEPARTMENT OF COMMERCE 
 
 The Assistant Secretary for Policy 
 Office of Regulatory Economics and Policy 
 
 Prepared by: 
 
 Lee Dymond; Donald Zimmerman; Terrence Davey 
 
 SYNERGY, INC. 
 
 2337 18th Street, N.W. 
 
 Washington, D.C. 20009 
 
 Purchase Order No. 8-36342 
 
 August 1978 
 
A-3 
 
 COSTS AND BENEFITS OF REGULATION: 
 A SURVEY OF STUDIES 
 
 Summary 
 
 The objective of this study is to survey and summarize the existing 
 literature on the costs and benefits of government regulations. To accom- 
 plish this task an annotated bibliography was prepared based largely on 
 studies published during the 1970s which develop quantitative estimates of 
 the costs of government regulation. The study is best characterized as a 
 reference document which allows the reader to summarily acquire a feel for 
 the breadth and depth of existing knowledge of the impact of regulation. 
 The intention was to include an overview of knowledge regarding the 
 benefits of regulation, however, the paucity of work in this area largely 
 precludes giving the reader a quantitative overview of regulatory benefits. 
 
 In addition to the annotated bibliography and the more extensive biblio- 
 graphy of additional studies , a separate annotated bibliography of data 
 sources, presenting the costs of compliance with government regulations, 
 is also included. That separate annotated bibliography is necessarily 
 brief, indicating the scarcity of published data. 
 
 The studies chosen for annotation and summarized in the following tables 
 reflect an objective choice of quality studies which include quantitative 
 estimates of the costs of government regulation. The information presented 
 is divided into five categories. These are: 
 
 Table 1: Impact of All Regulations on the National Economy 
 
 Table 2: Impact of Multiple Regulations on the National Economy 
 
 Table 3: Impact of Multiple Regulations on a Specific Group or Industry 
 
 Table 4: Impact of a Single Regulation on the National Economy 
 
 Table 5: Impact of Single Regulations on a Specific Group or Industry 
 
 The annotated studies represent a wide range of research methodologies, 
 data generation and manipulation, and conclusions about the costs and 
 benefits of government regulation on the economy. Estimation techniques 
 range from informed guesses to the evaluation of regulatory costs through 
 the most sophisticated macroeconometric forecasting models available. The 
 level of sophistication and hence, quality of information provided, extends 
 over a wide range, with most studies employing fairly elementary statisti- 
 cal techniques . 
 
 A brief survey of the tables indicates that the impact of all regulations 
 on the national economy has not received much research attention. This 
 type of study is quite difficult because of the need for comprehensiveness. 
 
A-4 
 
 Studies of the impact of multiple regulations on the national economy are 
 more common and present a far greater breadth and depth of coverage, by 
 industry and regulation, than do the studies of the impacts of all regula- 
 tions on the national economy. Studies which assess the impact of 
 multiple regulations on a specific group or industry are largely confined 
 to environmental regulations, especially air and water pollution. More 
 common are studies which assess the impact of a single regulation on the 
 national economy. Here, in addition to environmental regulations, studies 
 on the regulation of transportation, both air and surface, and agricultural 
 regulations receive much research emphasis. Table 5 shows the impacts of 
 single regulations on specific groups or industries, but this information 
 is deliberately kept to a few selected examples. This category contains 
 the overwhelming majority of studies done on the impacts of regulations. 
 Space permits a presentation of only a few studies as an example of the 
 type of analysis and cost estimates developed. Table 6 on Data Sources 
 reveals that data sources on pollution abatement costs comprise most of 
 the available data on the costs and benefits of regulation. Even in the 
 area of environmental regulations the amount of published data is quite 
 limited. 
 
 It is difficult to summarize briefly the results of all of these studies. 
 Any attempt to determine an aggregate cost of regulation will, on the one 
 hand, necessarily involve doublecounting across studies and on the other 
 hand, most likely understate the true costs of regulation because few of 
 the studies include all costs of regulations. 
 
 If any conclusions can be drawn from the information presented herein, 
 they must center around the notion that research on the impacts of govern- 
 ment regulation is in its infancy. Much additional work in the areas of 
 model development and data generation is sorely needed. Different studies 
 undertaken to assess the impact of government regulations on the same 
 industry present difficulties in making comparisons. The area of study on 
 the benefits of regulation has merely been alluded to with very little in 
 the way of quality research having been completed. 
 
 For all of the reasons mentioned above, the reader is cautioned not to 
 depend upon the summary tables included in this report as a basis for any 
 determination about the impact of government regulation on the economy. 
 Careful reading of the annotations, indeed of the studies themselves, is 
 necessary before one can begin to assess the state of the art in measuring 
 the impacts of government regulation. 
 
A-5 
 
 TABLE OF CONTENTS 
 
 TOPIC Page 
 
 I. SYNOPSIS A-7 
 
 Introduction A-9 
 
 Synopsis and Conclusions A-9 
 
 Structure of Report A-10 
 
 II. SUMMARY TABLES ON COSTS OF GOVERNMENT REGULATION A-13 
 
 Table 1 - Impact of All Regulations on the National Economy. . A-15 
 
 Table 2 - Impact of Multiple Regulations on the National 
 
 Economy A-16 
 
 Table 3 - Impact of Multiple Regulations on a Specific 
 
 Group or Industry A-18 
 
 Table 4 - Impact of a Single Regulation on the National 
 
 Economy , A-20 
 
 Table 5 - Impact of Single Regulations on a Specific Group 
 
 or Industry A-25 
 
 Table 6 - Data Sources A-26 
 
 III. ANNOTATIONS OF STUDIES ON THE IMPACT OF GOVERNMENT REGULATION. . . A-29 
 
 Impact of All Regulations on the National Economy A-31 
 
 Impact of Multiple Regulations on the National Economy .... A-33 
 
 Impact of Multiple Regulations on a Specific Group or 
 
 Industry A-51 
 
 Impact of a Single Regulation on the National Economy A-80 
 
 Impact of Single Regulations on a Specific Group or 
 
 Industry A-120 
 
 IV. EXTENSIVE BIBLIOGRAPHY ON REGULATORY IMPACT STUDIES A-125 
 
 Impact of All Regulations on the National Economy A-127 
 
 Impact of Multiple Regulations on the National Economy .... A-128 
 
 Impact of Multiple Regulations on a Specific Group or 
 
 Industry 
 
 A-132 
 
A-6 
 
 TABLE OF CONTENTS (Continued) 
 
 TOPIC Page 
 
 Impact of a Single Regulation on the National Economy a-134 
 
 Impact of a Single Regulation on a Specific Group or 
 
 Industry A-138 
 
 V. DATA SOURCES ON THE COSTS OF GOVERNMENT REGULATION A-139 
 
 Sources of Data A-141 
 
 Annotations A-142 
 
 Bibliography of Data Sources A-146 
 
 VI. INDEX A-149 
 
A- 7 
 
 I. 
 SYNOPSIS 
 
A-9 
 
 SYNOPSIS 
 
 INTRODUCTION 
 
 The objective of this study is to survey and summarize the existing 
 literature on the costs and benefits of government regulations. To accomplish 
 this task an annotated bibliography was prepared based on current quantitative 
 studies of the costs and benefits of government regulation. Most of the 
 studies included are limited to those published during the 1970 's so that the 
 information and data presented is relatively current. A more extensive 
 bibliography of studies which attempt to measure the costs and benefits of 
 government regulation appears at the end of this document. 
 
 In addition to the annotated bibliography of studies measuring the impact 
 of government regulation and the more extensive bibliography of additional 
 studies, a separate annotated bibliography of data sources, presenting the 
 costs of compliance with government regulations, is also included. That sepa- 
 rate annotated bibliography is necessarily brief, indicating the paucity of 
 published data. 
 
 SYNOPSIS AND CONCLUSIONS 
 
 The studies reported in this evaluation present a wide range of research 
 methodologies, data generation and manipulation, and conclusions about the 
 costs and benefits of government regulation on the economy*. Estimation tech- 
 niques range from informed guesses to the evaluation of regulatory costs 
 through the most sophisticated macroeconometric forecasting models available. 
 The level of sophistication and hence, quality of information provided, 
 extends over a wide range, with most studies employing fairly elementary 
 statistical techniques. 
 
 The generation of data also ranges from informed guesses to precise 
 engineering cost estimates. In some cases this is unavoidable. For example, 
 in the area of environmental regulations, much of the proposed pollution 
 control technology has not been commercially tested and thus real world cost 
 experiences are nonexistent. 
 
 A brief survey of the tables indicates that studies which assess the 
 impact of all regulations on the national economy do not receive much research 
 attention. This particular type of study is the most difficult to undertake 
 because of its explicit need for comprehensiveness. Studies of the impact of 
 multiple regulations on the national economy present a far greater breadth and 
 depth of coverage, by industry and regulation, than do the studies of the 
 impacts of all regulations on the national economy. Studies which assess the 
 impact of multiple regulations on a specific group or industry are largely 
 confined to environmental regulations, especially air and water pollution. 
 The greatest frequency of studies are those which assess the impact of a 
 single regulation on the national economy. Here, in addition to environmental 
 regulations, studies on the regulation of transportation, both air and surface, 
 and agricultural regulations receive much research emphasis. Table 5 shows 
 the impacts of single regulations on specific groups or industries, but this 
 information is deliberately kept to a few selected examples. This category 
 contains the overwhelming majority of studies done on the impacts of 
 
A-10 
 
 regulations . Space permits a presentation of only a few studies as an 
 example of the type of analysis and cost estimates developed. The last 
 table on data sources reveals that data sources on pollution abatement 
 costs comprise most of the available data on the costs and benefits of 
 regulation. Even in the area of environmental regulations the amount of 
 data published and available is quite limited. 
 
 It is difficult to summarize briefly the results of all of these 
 studies. Any attempt to determine an aggregate cost of regulation will, 
 on the one hand, necessarily involve double counting across studies and on 
 the other hand, most likely understate the true costs of regulation because 
 secondary and tertiary costs are not considered in most, if not all, of the 
 studies undertaken to date. Secondary and tertiary costs are those costs 
 which result indirectly from the primary costs of regulation. For example, 
 in the area of noise pollution control, the primary cost of one abatement 
 procedure may be to erect a barrier along a highway. The purpose of the 
 barrier is to block the noise created by surface transportation. The 
 secondary cost might be the decrease in value of the land adjacent to the 
 highway and the barrier because of the unsightliness of the barrier. A 
 tertiary cost in this case might be the cost to local government revenues 
 resulting from the lower tax receipts collected on the lower valued land 
 adjacent to the barrier. 
 
 If any conclusions can be drawn from the information presented herein, 
 they must center around the notion that research on the impacts of govern- 
 ment regulation is in its infancy. Much additional work in the areas of 
 model development and data generation is sorely needed. Different studies 
 undertaken to assess the impact of government regulations on the same 
 industry present difficulties in making comparisons. The area of study on 
 the benefits of regulation has merely been alluded to with very little in 
 the way of quality research having been completed. 
 
 For all of the reasons mentioned above, the reader is cautioned not to 
 depend upon the summary tables included in this report as a basis for any 
 determination about the impact of government regulation on the economy. 
 Careful reading of the annotations, indeed of the studies themselves, is 
 necessary before one can begin to assess the state of the art in measuring 
 the impacts of government regulation. 
 
 STRUCTURE OF REPORT 
 
 The first section of this report is composed of several tables which 
 summarize the types of regulations that affect various groups within the 
 economy and the sources of data available. The reader is cautioned against 
 making comparisons of the data presented in the tables, because the metho- 
 dologies, data bases, and theoretical and analytical problems differ from 
 study to study. Following the tables is a section composed of the abstracts 
 of the studies surveyed. The information in the tables and the specific 
 annotations of studies are not meant to be exhaustive of the studies which 
 provide quantitative estimates of the costs and benefits of regulation. 
 Time and resource constraints require that only a sample, however represen- 
 tative, of the more important studies be presented here. Following the 
 abstracts is an extensive bibliography of studies available on the impacts 
 
A-ll 
 
 of government regulation- Again, the extensive bibliography is much more 
 complete in its coverage of studies of the impacts of regulations on the 
 economy, but it is not by any means comprehensive of all the studies that 
 have been undertaken to date in this area. Following the extensive 
 bibliography is an annotated bibliography of data sources. 
 
 All the information presented in this report is divided into categories. 
 The five main categories surveyed are : 
 
 1. Impacts of all regulations on the national economy, 
 
 2. Impacts of multiple regulations on the national economy, 
 
 3. Impacts of multiple regulations on specific industries or groups, 
 
 4. Impacts of single regulations on the national economy, 
 
 5- Impacts of single regulations on specific groups or industries. 
 
 This particular categorization scheme is suggested as a way to evaluate the 
 research available on the impacts of government regulation, but it is in no 
 way the only possible technique for segregating the various studies. While 
 one might argue that particular studies cut across two categories or even 
 that a particular study belongs in a different category, such controversy 
 lends more credibility to the categorization than is intended. 
 
 The fifth category, that is, the impact of single regulations on 
 specific groups or industries is surveyed in a much more general and cursory 
 fashion than are the other categories. There are several reasons for not 
 detailing those studies that would be included in this category. The first 
 is that even if one were to compile accurately all those studies undertaken 
 to assess the impact of a single regulation on a single industry or group, 
 it is not clear as to how they could be added together to determine the 
 impact of government regulation on the economy. The second reason is that 
 there is a very large number of studies of this type and much more time and 
 many more resources would be needed to undertake this task than current 
 research efforts permit. 
 
 The tables which follow only include those studies which are annotated 
 in this report. The studies chosen for annotation and summarized in the 
 tables reflect an objective choice of quality studies which include quanti- 
 tative estimates of the costs of government regulation. 
 
 There are several people who have aided in the completion of this 
 report. Robert Miki, William Sullivan, and the Department of Commerce staff 
 have been very helpful in securing studies and commenting on annotations and 
 the extensiveness of bibliographies. Professor Paul MacAvoy of Yale 
 University was quite helpful in providing a bibliography of studies assessing 
 the impact of government regulation on the economy. We wish to thank these 
 people for their efforts. All remaining problems and errors in this study 
 are the responsibility of the authors. 
 
A-13 
 
 SUMMARY TABLES 
 
 ON COSTS OF 
 
 GOVERNMENT REGULATION 
 
A-15 
 
 TABLE 1 
 
 IMPACT OF ALL REGULATIONS 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year 
 
 Administrative Compliance Total 
 Costs Costs Costs 
 
 Weidenbaum and DeFina, 
 The Cost of Federal 
 Regulation of Economic 
 Activity 
 
 1976 
 
 $3.2 billion 
 
 $62.9 
 billion 
 
 $66.1 
 billion 
 
A-16 
 
 TABLE 2 
 IMPACT OF MULTIPLE REGULATIONS 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year 
 
 Regulations 
 Included 
 
 Total Costs 
 
 Bergs ten, C. Fred, 
 The Cost of Import 
 Restrictions to Ameri- 
 can Consumers 
 
 not Tariff and non- 
 given tariff restric- 
 tions 
 
 At least $10 billion 
 and may exceed $15 
 billion annually 
 
 Chase Econometric 
 Assoc, Inc.. "The 
 General Economy," The 
 Economic Impact of 
 Pollution Control — A 
 Summary of Recent 
 Studies (CEQ) 
 
 1976 Industry pollu- 
 1980 tion control 
 standards 
 
 Without government fiscal 
 and monetary policy: 
 decrease in GNP (constant 
 dollars) — $13 billion for 
 1976; decrease in GNP 
 (constant dollars) — $8 
 billion in 1980 
 
 With government fiscal 
 and monetary policy: no 
 decrease in GNP in either 
 1976 or 1980 
 
 Moore, Thomas G. , 
 "Deregulating Surface 
 Freight Transportation" 
 
 1960s Interstate Com- 
 merce Act regu- 
 lations for 
 surface freight 
 
 $3,775-$8,890 million 
 (includes costs due to 
 inefficient use of mode, 
 traffic shifted to alter- 
 nate mode, and traffic 
 not carried) 
 
 "Weidenbaum, Murray L. 
 Business, Government 
 and the Public 
 
 1974 Safety and 
 
 pollution stan- 
 ards of new 
 automobiles 
 
 $3 billion (cost to con- 
 sumers @ $320/car, 9.5 
 million cars sold) 
 
 MacAvoy, P. W. , "The 
 Effectiveness of the 
 Federal Power 
 Commission" 
 
 typi- 
 cal 
 year 
 in the 
 1960s 
 
 Federal Power 
 
 Commission 
 
 regulations 
 
 $46 million in FPC 
 expenditures 
 
A-17 
 
 TABLE 2 
 
 (continued) 
 
 IMPACT OF MULTIPLE REGULATIONS 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year 
 
 Regulations 
 Included 
 
 Total Costs 
 
 Chase Econometric 
 Assoc, Inc., The 
 Macroeconomic Impacts 
 of Federal Pollution 
 Control Programs 
 
 1973- Environmental 
 1977 regulations 
 
 (air and water) 
 
 A. Air Pollution Abate- 
 ment Costs in 1973 dollars 
 Total Investment Costs 
 -$26.9 billion; Annual 
 Costs-$38 billion 
 
 B. Water Pollution Abate- 
 ment Costs in 1973 dollars: 
 Total Investment Costs 
 -$28.9 billion, Annual 
 Costs-$24.1 billion 
 
 1978- 
 1982 
 
 C. Air Pollution Abate- 
 ment Costs: Total Invest- 
 ment Costs-$23.3 billion; 
 Annual Costs-$78.2 billion 
 
 D. Water Pollution Costs: 
 Total Investment Costs 
 -$73 million; Annual Costs 
 -$24 million 
 
 Moore , Thomas G . , 
 Freight Transporta- 
 tion Regulation: 
 Surface Freight and 
 the ICC 
 
 1968 
 
 ICC Regulation $3.8-$8.8 billion 
 
A-18 
 
 TABLE 3 
 IMPACT OF MULTIPLE REGULATIONS 
 ON A SPECIFIC GROUP OR INDUSTRY 
 
 Source 
 
 Group/or 
 Industry 
 
 Regulations 
 Year Included 
 
 Total Costs 
 
 Arthur D. Little, Inc. 
 Economic Impact of 
 Environmental Regula- 
 tions on the U.S. 
 Copper Industry 
 
 Thompson, Russell G. , 
 Jas. A. Calloway and 
 Lillicen A. Nawalanic, 
 The Cost of Electri- 
 city: Cheap Power vs. 
 A Clean Environment 
 
 Copper 
 
 1978-87 
 
 Clean Air 
 
 Industry 
 
 and 
 
 Act as 
 
 
 1974-87 
 
 Amended 
 (1970 and 
 
 1977); Fed 
 
 Water 
 
 Pollution 
 
 Control 
 
 Act as 
 
 Amended 
 (1972) 
 
 Electri- 
 
 1975- 
 
 Air and 
 
 cal Util- 
 
 1985 
 
 Water 
 
 ities 
 
 
 Pollution 
 
 1974-87: $2,771.9- 
 $2,978.3 million 
 (1974 dollars) 
 1978-87: $1,861.9- 
 $2,067.7 million 
 (1974 dollars) 
 
 Total investment 
 <costs for period 
 1975-1985 (in 1973 
 dollars) : $40.09- 
 $68.25 billion 
 (range due to 5 sets 
 of assumptions re- 
 garding levels of 
 pollution control 
 
 Commission on Federal 
 Paperwork , Final 
 Summary Report 
 
 Various 
 
 not 
 
 All re- 
 
 Sectors 
 
 given 
 
 quired 
 
 of the 
 
 
 federal 
 
 Economy 
 
 
 paperwork 
 
 $.075 billion, labor 
 organizations; $.35 
 billion, farmers; 
 $8.7 billion, indi- 
 viduals; $5-$9 bil- 
 lion, state & local 
 govt's; $25-$32 bil- 
 lion, private indus- 
 try; $43 billion, 
 Federal Government 
 
 Boo the, Joan Norris, 
 Cleaning Up: The Cost 
 of Refinery Pollution 
 Control 
 
 Petro- 
 
 1973- 
 
 Air and 
 
 leum 
 
 1974 
 
 Water 
 
 Refinery 
 
 
 Pollution 
 
 Industry 
 
 
 
 Investments (in 1974 
 dollars) : $3,350 
 million; Added pro- 
 duct costs (in 1974 
 dollars) : $5,042- 
 $6,408 million 
 
A-19 
 
 TABLE 3 
 (continued) 
 IMPACT OF MULTIPLE REGULATIONS 
 ON A SPECIFIC GROUP OR INDUSTRY 
 
 Source 
 
 Group/or 
 Industry Year 
 
 Regulations 
 Included 
 
 Total Costs 
 
 Temple, Barker & 
 Sloan, Inc., Economic 
 and Financial Impacts 
 of Federal Air and 
 Water Pollution Con- 
 trols on the Electric 
 Utility Industry: 
 Executive Summary 
 (EPA) 
 
 Electric 
 
 Utility 
 
 Industry 
 
 Air and 
 
 Water 
 
 Pollution 
 
 1975-85 cumulative 
 costs to consumers : 
 $40.2 billion 
 
 Sheppard, W. , et al, 
 Battelle Columbus 
 Laboratories, Economic 
 Impact of Environmental 
 Regulations on the 
 Petroleum Industry 
 
 Petro- base 
 leum year- 
 Industry 1985 
 
 Control 
 of air, 
 water , and 
 noise 
 pollution 
 
 Total costs of 
 $10.3-$17 billion 
 (1974 dollars) 
 
 URS Research Company, 
 The Economic Impacts 
 on the American Paper 
 Industry of Pollution 
 Control Costs 
 
 Paper 1969- 
 Industry 1974 
 
 Air and 
 
 Water 
 
 Pollution 
 
 1969-74 $1.2 bil- 
 lion was spent for 
 pollution abatement 
 project 
 
 Arthur D. Little, Inc. 
 Steel and the Environ- 
 ment: A Cost Impact 
 Analysis: Report to 
 the American Iron and 
 Steel Institute 
 
 Steel 1978- 
 Industry 1985 
 
 Environ- 
 mental 
 control 
 
 Zero growth: $4.9 
 
 billion 
 
 2% growth: $8.0 
 
 billion (1978 
 
 dollars) 
 
A-20 
 
 TABLE 4 
 
 IMPACT OF A SINGLE REGULATION 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year Regulation 
 
 Total Costs 
 
 I. Hanke, Steve H. and 
 Ivars Gutmanis, "Esti- 
 mates of Industrial 
 Waterborne Residuals 
 Control Costs: A Review 
 of Concepts, Methodology 
 and Empirical Results" 
 in Cost Benefit Analy- 
 sis and Water Pollution 
 Policy 
 
 1. Economics of Clean 
 Water (1972) 
 
 EPA (1973) 
 
 2. National Canners 
 Assn. and American 
 Food Institute 
 
 II. Theiblot, Armand J. 
 Jr., The Davis-Bacon Act 
 
 1977 
 
 Water 
 
 Capital costs (in 1971 dollars 
 
 
 Pollution 
 
 
 $11.9 billion 
 $8.3 billion 
 
 
 Water 
 
 (in 1972 dollars) 
 
 
 Pollution 
 
 A. 
 
 Aggregated Treatment costs 
 A.l. Annual costs 
 
 1972 
 
 
 
 $11 million 
 
 1975 
 
 
 
 $24 million 
 A. 2. Capital costs 
 
 1972 
 
 
 
 $ 58 million 
 
 1975 
 
 
 
 $127 million 
 
 
 
 B. 
 
 Irrigation costs 
 B.l. Annual costs 
 
 1972 
 
 
 
 $13 million 
 
 1975 
 
 
 
 $20 million 
 B.2. Capital costs 
 
 1972 
 
 
 
 $ 79 million 
 
 1975 
 
 
 
 $122 million 
 
 
 
 C. 
 
 Municipal Disposal and 
 Pretreatment costs 
 
 1972 
 
 
 
 $10 million 
 
 1975 
 
 
 
 $24 million 
 
 
 
 D 
 
 Industry in-plant abatement 
 costs 
 
 1972 
 
 
 
 $ 6 million 
 
 1975 
 
 
 
 $16 million 
 
 1971 
 
 Davis- 
 
 $620 million-$l billion for 
 
 
 Bacon Act 
 
 one Federal Government 
 
 construction project 
 
A-21 
 
 TABLE 4 
 
 (continued) 
 
 IMPACT OF A SINGLE REGULATION 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year 
 
 Regulation 
 
 Total Costs 
 
 III. National Commission 
 on Water Quality, Staff 
 Report to the National 
 Commission on Water 
 Quality 
 
 Federal 
 Water Pollu- 
 tion Control 
 Act 
 
 Capital costs O&M 
 
 A. BPT: $36.0 bill. $6.8 bill. 
 
 B. BAT: $23.2 bill. 5.8 bill, 
 
 C. New Sources (until 1983) : 
 
 $19.9 bill. 
 
 IV. Mintz, Use, U.S. 
 Import Quotas : Costs 
 and Consequences 
 
 (Millions of dollars) 
 
 Not 
 
 Import Quotas 
 
 Sugar - $581-$707 
 
 stated 
 
 for Textiles 
 and Sugar 
 
 
 1976 
 
 
 Textiles-cotton - $1,100 
 -woolen & 
 manmade- $3,600 
 
 V. Douglas, Geo. W. 
 & Jas. C. Miller, 
 Economic Regulation of 
 Domestic Air Transport 
 
 1969 CAB Regula- 
 tions for 
 Domestic 
 Trunk Air 
 Carriers 
 
 Cost to passengers in excess 
 fares 
 
 A. $366-$538 million 
 
 B. Adjusted for passenger 
 purchased reduction in 
 delay time: 
 $248-$356 million 
 
 VI . Keeler , Theodore , 
 "Airline Regulation & 
 Market Performance" 
 
 1965 Domestic 
 airline 
 regulations 
 
 Regulated fares show a 
 45%-85% markup over unregu- 
 lated fares 
 
A-22 
 
 TABLE 4 
 
 (continued) 
 
 IMPACT OF A SINGLE REGULATION 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year Regulation 
 
 Total Costs 
 
 VII. Davis, Karen, 
 National Health 
 Insurance 
 
 1975 Proposed al- 
 ternatives 
 for national 
 health 
 insurance 
 
 VIII. Peltzman, Sam, 
 Regulation of Phar- 
 maceutical Innovation 
 
 1962 amendments 
 to Food, Drug 
 & Cosmetic Act 
 
 A. $50 million cost to 
 consumers due to re- 
 duced price competition 
 
 B. $300-$400 million net 
 benefits due to reduced 
 flow of new drugs & 
 information 
 
 C. $15 million cost of 
 FDA implementation 
 
 IX. Clawson, Marion, 
 The Economics of 
 National Forest 
 Management 
 
 1972? National Forest 
 Management 
 
 Annual deficit of $2 
 
 billion representing 
 
 interest charge on 
 
 investment in national 
 
 forests. 
 
 Annual estimated cost 
 
 of $600 million due to 
 
 excess inventory in 
 
 forests 
 
 Per acre appropriation 
 
 in 1972 for national 
 
 forest investment and 
 
 management- $6 .53 
 
 X. Smith, Jas. S. , 
 
 Not 
 
 Equal Credit 
 
 "The Equal Credit 
 
 given 
 
 Opportunity 
 
 Opportunity Act of 
 
 
 Act of 1974 
 
 1974: A Cost Benefit 
 
 
 
 Analysis" 
 
 
 
 Annual nonrecurring costs 
 
 $174.8 million 
 Annual recurring costs 
 
 $118 million 
 
A-23 
 
 TABLE 4 
 
 (continued) 
 
 IMPACT OF A SINGLE REGULATION 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year 
 
 Regulation 
 
 Total Costs 
 
 XI. Kwoka, John E. , Jr. 
 "Pricing under Federal 
 Milk Market Regulation" 
 
 Federal Milk 
 
 Marketing 
 
 Orders 
 
 
 1960 
 
 
 
 1970 
 
 
 
 1960 
 
 
 
 1970 
 
 
 XII. MacAvoy, Paul W. , 
 
 
 Federal Milk 
 
 "Federal Milk Marketing 
 
 
 Marketing 
 
 Orders & Price Supports" 
 
 
 Orders 
 
 A. As cited in Ippolito 
 
 1973 
 
 
 & Mason 
 
 
 
 Redistribution of 
 
 income from consumer 
 
 to producer: 
 
 $300.1 million 
 $750.2 million 
 
 Deadweight loss : 
 $ 55.2 million 
 $179.3 million 
 
 1. Deadweight loss: 
 $125-$245 million 
 
 2 . Transfer payments : 
 $250-$500 million 
 
 B. As cited in Kwoka 
 
 1970 
 
 1. Deadweight loss: 
 $202 million 
 
 2. Gross transfer payments 
 $805 million 
 
 XIII. Heien, Dale, "The 
 Cost of the U.S. Dairy 
 Price Support Program" 
 
 1949- Dairy Price 
 1974 Support 
 Program 
 
 Total costs of $10,453 
 billion over the 26-year 
 period or an average $402 
 million per year. 
 
 1949- Federal Milk 
 1974 Marketing 
 Order 
 System 
 
 Total costs of $4,558 
 billion over the 26-year 
 period or an average $175 
 million per year 
 
A-24 
 
 15 
 
 TABLE 4 
 
 (continued) 
 
 IMPACT OF A SINGLE REGULATION 
 
 ON THE NATIONAL ECONOMY 
 
 Source 
 
 Year Regulation 
 
 Total Costs 
 
 XIV. Boyer, Kenneth D., Not 
 "Minimum Rate Regulation : Given 
 Modal Split Sensitivities 
 and the Railroad Problem" 
 
 ICC Minimum Rate 
 Regulation 
 
 Intermodal traffic 
 misallocation costs 
 to the economy: 
 $125 million per 
 year 
 
 XV. Goldfarb, Robert S. 
 & John F. Morrall, III 
 "Cost Implications of 
 Changing Davis-Bacon 
 Administration " 
 
 1972 
 
 Davis-Bacon Act 
 
 Costs due to inef- 
 ficient determina- 
 tion of prevailing 
 wage rates: $222- 
 $571 million 
 
 XVI. Friedlaender , Ann, 
 "The Social Costs of 
 Regulating Railroads" 
 
 1969 Rail regulation 
 of value of 
 service pricing 
 & maintenance of 
 excess capacity 
 
 Due to excess capa- 
 city: $2.4-$3.8 
 billion; Deadweight 
 costs due to value 
 of service pricing: 
 $220-$270 million 
 
 XVII. Comanor, William 
 S. & Bridger M. Mitchell, 
 "The Cost of Planning: 
 The FCC and Cable Tele- 
 vision" 
 
 FCC regulation 
 of Cable 
 television 
 
 $l-$2 billion loss 
 per year to the 
 national economy 
 
A-25 
 
 TABLE 5 
 
 IMPACT OF SINGLE REGULATIONS 
 
 ON A SPECIFIC GROUP OR INDUSTRY 
 
 Source 
 
 Group/or 
 Industry 
 
 Year Regulation 
 
 Total Costs 
 
 Miernyk, William H., 
 and Jolin T. Sears, 
 Air Pollution and 
 Regional Economic 
 Development in Input 
 Output Analysis 
 
 Industrial 1975 Air Alternative I 
 plants in Pollution Total Capital Costs, 
 
 W. Va. $352 million; Total 
 
 Operating Costs, $55 
 million; Change in 
 Total Gross Output, 
 $323 million 
 
 Alternative 2 
 Total Capital Costs, 
 $439 million; Total 
 Operating Costs, $78 
 million; Change in 
 Total Gross Output, 
 $413 million 
 
 Alternative 3 
 
 Total Capital Costs, 
 $976 million; Total 
 Operating Costs, $152 
 million; Change in 
 Total Output, $864 
 million 
 
 Seskin, Eugene P., 
 "Automobile Air 
 Pollution Policy," 
 Current Issues in 
 U.S. Environmental 
 Policy 
 
 1976- Clean 
 1985 Air Act 
 as 
 
 Amended 
 Through 
 1970 
 
 $95.1 billion 
 Annual Costs After 
 1985— $10.1 billion 
 
 National Academy 
 of Sciences Study 
 (in Seskin above) 
 
 Annually Clean 
 through Air Act 
 
 1985 
 
 as 
 
 Amended 
 Through 
 1970 
 
 Annual Costs of $8- 
 $11 billion through 
 1985 
 
A-26 
 
 TABLE 6 
 DATA SOURCES 
 
 Source 
 
 Data Coverage 
 
 Frequency 
 
 Year 
 Available 
 
 American Petroleum Institute, 
 Environmental Expenditures of 
 the United States Petroleum 
 Industry, 1967-1976 
 
 Pollution control 
 expenditures for 
 the U.S. petroleum 
 industry 
 
 Annual 
 
 1971-1977 
 
 Bureau of Economic Analysis: 
 
 Segel, Frank W. and Frederick 
 3. Dreiling, "Pollution Abate- 
 ment and Control Expenditures, 
 1972-1976," 
 
 Private and public 
 expenditures for 
 air and water pol- 
 lution control 
 
 Annual 
 
 1975-1978 
 
 Segel, Frank W. and Betsy C. 
 Dunlap, "Capital Expenditures 
 by Business for Pollution 
 Abatement 1976 and Planned 
 1977" 
 
 New plant and 
 equipment expendi- 
 tures for air, 
 water and solid 
 waste pollution 
 
 Annual 
 
 1974-1978 
 
 Bureau of the Census 
 
 Environmental Quality Control- 
 Government Finances and Em- 
 ployment: Fiscal Years 1975 
 -1976, State and Local Govern- 
 ment, Special Studies No. 86 
 
 Federal, state, 
 and local govern- 
 ment expenditures 
 for pollution 
 abatement 
 
 Annual 
 
 1975-1978 
 
 Pollution Abatement Costs and 
 Expenditures 1973 , Current 
 Industrial Reports, Series: 
 MA-200 
 
 Manufacturers ' 
 capital expendi- 
 tures and operat- 
 ing costs for 
 pollution abate- 
 ment 
 
 Annual 
 
 1973-1976 
 
 Selected Industrial Air 
 Pollution Control Equipment , 
 Current Industrial Reports, 
 Series: MA-35J 
 
 Value of ship- 
 ment of selected 
 industrial air 
 pollution control 
 equipment 
 
 Annual 
 
 1972-1976 
 
A-27 
 
 TABLE 6 
 (continued) 
 DATA SOURCES 
 
 Source 
 
 Data Coverage 
 
 Year 
 Frequency Available 
 
 Council on Environmental 
 Quality, Environmental 
 Quality — The Eighth Annual 
 Report of the Council on 
 Environmental Quality 
 
 Pollution control Annual 1970-1977 
 expenditures 
 
 Environmental Protection 
 Agency : 
 
 Cost of Air and Water 
 Pollution Control 1975- 
 1985 
 
 Projected air and 
 water pollution 
 control expenditures 
 1975-1985 
 
 Cost of Clean Water Vol. II ; 
 Cost Effectiveness and Clean 
 Water 
 
 Industry Expenditures for 
 Water Pollution Abatement 
 
 Industrial invest- 
 ment in air and water 
 pollution control, 
 1969-1970 and invest- 
 ment in municipal 
 waste treatment 
 plants, 1962-1968 
 
 Water pollution 
 control expenditures 
 
 U.S. Department of the 
 Interior, Federal Water Pol- 
 lution Control Administra- 
 tion, The Cost of Clean Water 
 and Its Economic Impact 
 
 Vol. I — Plant and 
 equipment cost 
 estimates 
 
 Vol. II — Cost of 
 municipal water 
 pollution control 
 
 Vol. Ill—Local 
 financing of waste- 
 water treatment 
 systems 
 
 Vol. IV — Projected 
 costs of control of 
 pollution in the 
 organic chemistry 
 industry 
 
A-28 
 
 TABLE 6 
 (continued) 
 DATA SOURCES 
 
 Source 
 
 Data Coverage 
 
 Frequency 
 
 Year 
 Available 
 
 McGraw-Hill: 
 
 10th Annual McGraw-Hill Survey 
 of Pollution Control Expendi- 
 tures 
 
 4th Annual McGraw-Hill Survey; 
 Investment in Employee Safety 
 and Health 
 
 Expenditures for Annual 1968-1978 
 air and water 
 pollution controls 
 
 Investment required Annual 1973-1978 
 by employee safety 
 and health regula- 
 tions 
 
A-29 
 
 ANNOTATIONS OF STUDIES 
 
 ON THE IMPACT OF 
 GOVERNMENT REGULATION 
 
A-31 
 
 IMPACT OF ALL 
 
 REGULATIONS ON THE 
 
 NATIONAL ECONOMY 
 
A-32 
 
 (1) 
 
 Weidenbaum, Murray L. and Robert DeFina, The Cost of Federal Regulation 
 of Economic Activity , Reprint No. 88, (Washington, D.C. : American Enterprise 
 Institute, 1978). 
 
 Purpose : 
 
 To measure the overall cost of federal regulation on the American 
 economy . 
 
 Methodology : 
 
 Estimates are based on other studies of costs of specific regulations 
 on the economy. 
 
 Constraints : 
 
 The data used came from the current published economic literature. The 
 scope and methodology of the studies vary, and cover only a small part of the 
 total regulatory activities of the government. 
 
 Conclusions : 
 
 In 1976 the cost to the American economy of federal regulatory activi- 
 ties totaled $66.1 billion. Of this $3.2 billion were for administrative 
 costs and $62.9 billion for compliance costs. 
 
A-33 
 
 IMPACT OF MULTIPLE 
 
 REGULATIONS ON THE 
 
 NATIONAL ECONOMY 
 
A-34 
 
 (2) 
 
 Bergs ten, C. Fred, The Cost of Import Restrictions to American Consumers 
 (New York: American Importers Association, 1972) . 
 
 Purpose : 
 
 To estimate the total cost to consumers of federal regulation of inter- 
 national trade (tariffs, quotas, and voluntary export agreements). 
 
 Methodology : 
 
 Cost estimates were obtained from other sources or calculated from 
 international trade data. 
 
 Constraints: 
 
 The estimates presented are very imprecise. 
 
 Conclusions : 
 
 Costs to Consumers 
 Millions of U.S. Dollars 
 Restriction for Specific Trade Restraints 
 
 Tariffs and voluntary export constraints 
 as consumer apparel*^ $1,300 
 
 Sugar import quotas** $ 500 
 
 Voluntary export restraints on meat $ 350 
 
 Dairy product quotas $ 500 
 
 The total cost to consumers of all tariff and non-tariff restrictions 
 is at least $10 billion and may exceed $15 billion per year. 
 
 * Brimmer, Andrew F. , "Import Controls and Domestic Inflation," a 
 paper presented before the Economics Seminar University of Maryland, 
 November 11, 1970. 
 
 ** Brimmer, Andrew, F., "Imports and Economic Welfare in the United 
 States" remarks before the Foreign Policy Association, New York, 
 February 16, 1972. 
 
A-35 
 
 (3) 
 
 Chase Econometric Associates, Inc., "The General Economy," The Economic 
 Impact of Pollution Control - A Summary of Recent Studies , prepared for the 
 Council on Environmental Quality, Department of Commerce, and Environmental 
 Protection Agency, (Washington, D.C. : U.S. Government Printing Office, 1972). 
 
 Purpose : 
 
 To estimate the macroeconomic effects of the imposition of industry 
 pollution control standards. 
 
 Methodology : 
 
 Cost estimates of pollution control in various industries were taken 
 from CEQ and EPA. These estimates were increased by price markup factors to 
 determine the price increases at the industry and macroeconomic levels. The 
 effects of increased investment required by existing pollution control 
 legislation were also included. These costs, prices and investments were 
 used as inputs into the Chase Econometrics macroeconomic model to determine 
 their effects on the overall economy. 
 
 Assumptions : 
 
 The model was run under the assumptions that first, the government 
 would take no action to offset lower real output and rising unemployment, and 
 second, that it would use fiscal and monetary policy to return to the same 
 real output level but at a higher price level. 
 
 The model is estimated for the period 1972-1980 with the following 
 assumptions : 
 
 1. Unemployment rate will remain at 4.5 percent during the latter half of 
 the 1970' s. 
 
 2. Rate of inflation fluctuates from 3 to 4 percent but declines to 3 percent 
 by 1989. 
 
 3. The average real growth rate from 1976-1980 is a 4-1/3 percent. 
 
 4. There is a slight federal government surplus during 1976-1980. 
 
 Constraints : 
 
 The pollution control costs only covered 15 industry groups. Other 
 sectors may be affected by pollution control standards but were not included 
 in the study. The costs for each of the industry groups depend upon con- 
 straints and limitations contained in the individual industry study. The 
 econometric model was not designed to handle pollution control issues. 
 
 Conclusions : 
 
 The following results highlight the impacts of pollution control: 
 
A-36 
 
 (3) 
 
 ] . Without government fiscal and monetary policy 
 
 1976 
 Wholesale price index 
 Implicit GNP deflator 
 Consumer price index 
 Constant-dollar GNP 
 Unemployment rate differential 
 Net foreign balance 
 Fixed business investment 
 Housing starts 
 
 1980 
 +2.8 percent 
 +0.9 percent 
 
 
 -$8 billion 
 +0.15 percent 
 +$0.2 billion 
 $0.1 billion -$1.2 billion 
 -0.09 million -0.03 million 
 
 +2.9 percent 
 +1.7 percent 
 +1.2 percent 
 -$13 billion 
 
 units 
 
 units 
 
 2. With government fiscal and monetary policy: 
 
 1976 
 Wholesale price index increase 
 Implicit GNP deflator increase 
 Consumer price index increase 
 Constant-dollar GNP decrease 
 Unemployment rate differential 
 Net foreign balance decline 
 Fixed business investment 
 Housing starts 
 
 +2.9 percent 
 +1.8 percent 
 +1.5 percent 
 
 
 
 
 1980 
 +3.7 percent 
 +2.6 percent 
 +2.4 percent 
 
 
 
 
 -$2.2 billion -$2.8 billion 
 +$1.5 billion -$0.2 billion 
 
 -0.14 million 
 units 
 
 -0.14 million 
 units 
 
A-37 
 
 (4) 
 
 Moore, Thomas Gale, "Deregulating Surface Freight Transportation," 
 in Almarin Phillips, ed., Promoting Competition in Regulated Markets 
 (Washington, D.C. : The Brookings Institution, 1975). 
 
 Purpose : 
 
 To measure three types of costs to the economy due to regulation under 
 the Interstate Commerce Act. The first is the increased cost caused by 
 regulation within a mode. The second is the cost from shifting traffic from 
 low-cost modes to high-cost modes. The third is the allocative cost of non- 
 shipment of goods due to higher prices . 
 
 Methodology : 
 
 Common Carrier Truck 
 
 In the 1950 's a series of court decisions held that fresh dressed 
 poultry, frozen poultry, and frozen fruits and vegetables were exempt from 
 regulation. The U.S. Department of Agriculture did a study to assess the 
 impact of this deregulation on transport rates. Using the results of this 
 study Moore estimated that rates would fall 20 percent if regulation of 
 trucking was eliminated. He estimated for 1968 there would be a decline in 
 revenue of $1.92 billion. Using different assumptions he calculated the 
 increase in cost due to regulation to be between $1.4 billion to $1.89 
 billion. 
 
 Private Trucks 
 
 Private trucks are generally prohibited from soliciting commercial 
 traffic. This normally results in empty backhaul since the normal flow of 
 goods for a company is in one direction. Using Department of Transporta- 
 tion's data on the percent of trucks that run empty in private and regulated 
 use and the percent of truck miles that could be saved if private trucks had 
 the same utilization as regulated vehicles; U.S. Bureau of the Census data 
 on the number of truck-miles for each type of truck by sector of the economy; 
 and a Highway Research Board study on the cost per vehicle-mile, Moore 
 calculated the cost savings to the economy if private trucking could achieve 
 the average performance as ICC-regulated trucking. 
 
 Railroads 
 
 Moore first estimated the average percentage decline in rail rates in 
 the absence of regulation. He then calculated the decrease in revenues for 
 the same traffic. He then estimated how much of this decline reflects 
 lower costs and how much reflects lower monopoly profits. 
 
 Water Carriers 
 
 Moore used estimates developed by Karl M. Ruppenthal, "Some Economic 
 Aspects of the Barge Line Mixing Rule," Transportation Journal (Spring 1970) 
 
 Moore used estimates by others for costs of traffic shifted to alter- 
 native modes and costs of traffic not carried. 
 
 Constraints ; 
 
 Th6 estimates are very crude, only showing the order of magnitude of 
 the ci/sts. 
 
A-38 
 
 (4) 
 Conclusions : 
 
 Moore concluded that as much as one- third of the income generated in 
 surface freight transportation might be pure waste. The table below shows 
 his cost estimates. 
 
 Table 7 
 
 Economic Loss from Regulation of Surface Freight, 1960s 
 
 Millions of dollars 
 
 
 
 Estimate of loss 
 
 
 Type of loss 
 
 low 
 
 Medium 
 
 High 
 
 Inefficient use of mode 
 
 
 
 
 Common carrier trucks 
 
 1,400 
 
 1,660 
 
 1,890 
 
 Private trucks 
 
 100 
 
 200 
 
 1,000 
 
 Rails 
 
 1,700 
 
 2,000 
 
 2,400 
 
 Water carriers 
 
 200 
 
 300 
 
 300+ 
 
 Pipelines 
 
 n.e. 
 
 n.e. 
 
 n.e. 
 
 Subtotal 
 
 3,400 
 
 4,160 
 
 5,590-f- 
 
 Traffic shifted to alternate mode 
 
 
 
 
 Trucks to rails 
 
 200 
 
 1,100 
 
 2,900 
 
 Water carriers to rails 
 
 n.e. 
 
 n.e. 
 
 n.e. 
 
 Pipelines to other modes 
 
 n.e. 
 
 n.e. 
 
 n.e. 
 
 Subtotal 
 
 200 
 
 1,100 
 
 2,900 
 
 Trafhc not carried 
 
 175 
 
 300 
 
 400 
 
 Total estimated loss 
 
 3,775 
 
 5,560 
 
 8,890 
 
 n.e. not estimated. 
 
A-39 
 
 (5) 
 
 Weidenbaum, Murray L., Business, Government, and the Public (Englewood 
 Cliffs, N.J. : Prentice-Hall, Inc., 1977). 
 
 Purpose : 
 
 To estimate the cost to consumers of federally mandated safety and 
 pollution standards of new automobiles. 
 
 Methodology : 
 
 Cost estimates of changes in automobiles required to meet federal 
 regulation in 1974 were obtained from the U.S. Department of Labor, Bureau 
 of Labor Statistics. The sum of these costs was then multiplied by new 
 car purchases in 1974 to obtain the total cost to consumers . 
 
 Constraints : 
 
 The cost estimates were not adjusted for inflation that took place 
 after the year the mandated design changes occurred and the additional 
 operating costs were not included in the estimates . 
 
 Conclusions : 
 
 The cost increase per new car was estimated to be $320 for 1974. For 
 the approximate 9.5 million cars sold that year the cost to the consumer was 
 $3 billion. 
 
A-40 
 
 (6) 
 
 MacAvoy, P. W., "The Effectiveness of the Federal Power Commission," 
 The Bell Journal of Economics and Management Science (Autumn 1970) . 
 
 Purpose : 
 
 This paper takes the view that the Federal Power Commission dispenses 
 services that have measurable economic benefits and imposes the cost of 
 these services on both the regulated firms and final consumers of gas and 
 electricity. 
 
 Methodology : 
 
 MacAvoy measures benefits by finding the amount of money that consumers 
 and producers together would be willing to pay over and above the actual 
 amount involved in transactions in order to maintain the condition from 
 regulation. This "surplus" is measured by finding the areas under demand 
 functions Q=F (P) . The Commission is considered efficient if it is extending 
 services at lowest cost and if the services result in dollar consumer and 
 producer surpluses greater than these costs. The cost of regulation can be 
 estimated from the Commission's expenses and from an estimated survey of 
 defendant's actual expenditures in recent cases. 
 
 Constraints : 
 
 Estimates of benefits depend critically on detailed information on market 
 prices and quantities in the absence as well as the presence of ongoing 
 regulatory surveillance and accounting activities. 
 
 Conclusions : 
 
 Federal Power Commission regulations cost at least $46 million during 
 a typical year in the late 1960's. The expenditures were made to protect 
 the consumer, and some consumers appear to have gained while other consumers 
 and stockholders lost. The benefits from Commission-initiated price reduc- 
 tions were not only diverse within a Commission program, but also less than 
 the costs of regulation in some but not in other programs . 
 
A-41 
 
 (7) 
 
 Chase Econometric Associates, Inc., The Macroeconomic Impacts of Federal 
 Pollution Control Programs , (Washington , D . C . : Council on Environmental 
 Quality, January 1975) . 
 
 Purpose : 
 
 To continue the effort to assess the impact of environmental programs 
 on the economy. The analysis has been carried out for the period to 1982. 
 
 Methodology : 
 
 The analysis uses abatement cost estimates for the period 1973-1982 
 supplied by EPA and CEQ for air and water pollution abatement. The estimates 
 include capital investment, annualized capital cost, and operating and main- 
 tenance costs for each of the years in the period of analysis and are disaggre- 
 gated by two digit industries. Impacts of the pollution control expenditures 
 are estimated by comparing the economic forecast including these expenditures 
 with the forecast which is similar except that it excludes such additional 
 environmental expenditures. Alternative scenarios based upon different cost 
 estimates, and alternative assumptions about the underlying economics 
 scenarios , the level of expenditures , and the timing over the 10-year 
 period are also investigated. The baseline values for the overall economic 
 scenario are taken from the Chase Econometric long-term macroeconomic 
 outlook . 
 
 Assumptions : 
 
 The number of assumptions for the baseline forecasts are made in the 
 Chase model: 
 
 1. For 1975 through 1980 an unemployment rate of 4h percent. 
 
 2 . A 4 percent growth and real GNP for the period 1975-1980 
 and 3.7 percent for the period 1981-1983. 
 
 3 . The rate of inflation as measured by the Consumer Price 
 Index averages 6.5 percent for 1975-1980 and 5.2 percent 
 from 1981-1983. 
 
 4. Federal, state, and local government projects will remain 
 approximately in balance over the coming decade with an 
 average annual surplus of $3 billion over this period. 
 
 5 . The personal savings rate will average approximately 
 lh percent for the period. 
 
 6. New car sales will increase from a low level of 9.1 
 million units in 1974 to 11.2 million in 1976 then rise 
 slowly from that point to 12.8 million units in 1983. 
 
 7. Housing starts will rebound from a low level of 1.4 million 
 units in 1974 to 1.9 million units in 1976 and will remain 
 at this level for the rest of the decade . 
 
 8 . Short-term interest rates will decline from present levels 
 (1974) but long-term interest rates will continue to rise 
 and will average approximately 11 percent over the decade . 
 
 An alternative scenario called the full employment baseline, not vastly 
 different from the cyclical baseline presented above, was also examined. 
 
A-42 
 
 (7) 
 Constraints ; 
 
 Cost estimates are based on the assumption that deadlines and standards 
 establishing the Clean Air Act as amended and the Federal Water Pollution Control 
 Act as amended will be achieved. Costs do not include those associated with 
 meeting the 1983 standards established for the 1972 amendments of the Federal 
 Water Pollution Control Act. Thus macroeconomic impacts at the end of the decade 
 
 (1973 to 1982) may be greater than projected. In addition, the initial computer 
 runs for the study were made in the fall of 1974 and here some of the baseline 
 forecasts do not completely reflect subsequent changes in economic conditions . 
 
 Conclusions : 
 
 The cost estimates are predominantly based upon cost estimates provided 
 in the 1974 edition of The Cost of Clean Air and the 1973 edition of The Economics 
 
 of Clean Water . For industrials , utilities and public sources , and mobile source 
 emission controls over the period 1973 to 1977, the total required investment 
 (in millions of 1973 dollars) is $26.9 billion with an annual investment (annual 
 cost includes depreciation, interest charges, and operating and maintenance 
 expenditures) of $38 billion. Over that same period, 1973 to 1977, the abatement 
 cost for water pollution is $28.9 billion for investment with an annual cost 
 of $24.1 billion. Over the period 1978 to 1982, air pollution abatement cost 
 investments total $23.3 billion with an annual cost of $78.2 billion. For 
 water pollution abatement costs over this same period 1978 to 1982 the investment 
 costs are $73 million with annual costs of $24 million. 
 
 The following conclusions result from evaluating these pollution control 
 costs in terms of macroeconomic forecasts of the economy: 
 
 1. By 1978 the Wholesale Price Index will be 3 percent higher. 
 The implicit GNP deflator will be 1.9 percent higher and the 
 Consumer Price Index will be 1.2 percent higher, corresponding 
 
 to average annual rates of increase of .6 percent, .4 percent and 
 .24 percent over this period for each of the indices, respectively. 
 
 2. In 1982 the cumulative price differentials are only 2.4 percent, 
 .9 percent and .02 percent. These reductions in the price 
 differentials result from substantial reductions in investment 
 and in part to incremental slowdown in economy. 
 
 3. Constant dollar GNP will be 1.6 percent higher in 1975 with 
 the pollution control expenditures than without. However, 
 by 1979 real GNP's are projected to be 2 percent below the 
 baseline forecasts . This difference gradually diminishes 
 and by 1982 real GNP ends up virtually the same as with the 
 baseline forecast. 
 
 4. The unemployment rate is .4 percent lower in 1975 and .3 
 percent lower in 1976 than it would have been in the baseline 
 forecast. However, by 1979 it has risen .4 percent above 
 the baseline forecast. 
 
 5. Cost estimates provided by EPA/CEQ show incremental pollution 
 control investments amounting to approximately 5 percent of 
 total plant and equipment expenditures through 1976. This 
 type of investment will result in somewhat lower levels of 
 other types of investments, substitution taking place approxi- 
 mately at the rate of a 40$ reduction in all other private 
 
A-43 
 
 (7) 
 
 investment for every $1.00 investment in pollution control 
 plant and equipment. However, by 1979 annual investment 
 for plant and equipment will be 4.8 percent below the base- 
 line level, the difference declining to 2.5 percent by 1982. 
 Housing starts will decline by as much as 15.3 percent in 
 1978. 
 
 Under the full employment baseline scenario, prices will be 
 about two-fifths higher than under the baseline. A 25 percent 
 increase in pollution control expenditures would raise the 
 incremental change in prices about two-fifths in the peak years 
 and have a negative impact on real growth and employment. 
 Finally, stretching out the timing of expenditures to level 
 peak-year purchases reduces the economic effects on output 
 and prices by as much as one-half . 
 
A-44 
 
 (8) 
 
 Moore, Thomas Gale, Freight Transportation Regulation Surface Freight and 
 the Interstate Commerce Commission , (Washington, D. C: American Enterprise 
 Institute, 1972) . 
 
 Purpose ; 
 
 To investigate the impacts of freight regulation over its historical 
 period and determine alternative regulatory or nonregulatory procedures 
 that would better serve the public interest. 
 
 Regulatory Intent : 
 
 Different regulations which apply to freight transportation from the 
 Interstate Commerce Act of 1887 up through and including the Transportation 
 Act of 1958 were instituted under the assumption that in lieu of some type 
 of regulation, competition would be destructive and lead to monopoly. Most 
 of the regulations implemented in this area have been initiated by the 
 industries to be regulated. The main economic justification for these 
 regulations is that these particular types of transportation (especially 
 the railroads) are subject to extensive economies of scale thereby implying 
 that there are natural monopolies . As natural monopolies they are often in 
 a position to exploit their monopoly powers by charging prices in excess of 
 their costs. As competitors were attracted because of excess profits, 
 competition became cutthroat and unstable with prices declining and losses 
 generally inflicted on all participants . 
 
 Methodology : 
 
 The study relies on a qualitative assessment of each of the individual 
 acts starting with the Interstate Commerce Act of 1887 and attempts to 
 justify its initiation and approval by Congress. Railroads, the trucking 
 industry and water carriers receive primary emphasis throughout the study. 
 An explanation of regulatory practices such as entry into the industry, rate 
 setting, service and merger policy, and how the ICC deals with each is also 
 included in the analysis. The study goes on to determine the effects of 
 regulation. Prices, service, market shares, and the general cost of the 
 economy are investigated. The methodology for computing these estimates 
 is basically to bring together the work of many other authors. 
 
 Constraints : 
 
 No individual study has yet been able to identify and quantify all the 
 costs imposed by regulation in this particular industry although major 
 elements have been estimated. The mixing of different estimation procedures 
 and methodologies and probably data bases on which estimates are formulated 
 is a constraint on the results of this study. 
 
 Conclusions : 
 
 1. The estimate of economic loss in the year 1968 to the economy from 
 the inefficient use of common carrier trucks, private trucks, rails and 
 water carriers ranges from $3.4 billion to $5.59 billion. 
 
 2. The loss from traffic carried by trucks instead of rails, and water 
 carriers instead of rails is estimated to be between $200 million and $2.9 
 billion. 
 
A-45 
 
 (8) 
 
 3 . The loss from traffic not carried is estimated to be between $175 
 million and $400 million. The total number for the total estimated cost of 
 ICC regulation in 1968 is estimated to be between $3.8 billion and $8.8 
 billion. 
 
 4 . The author concludes that the abolishment of economic regulation 
 of surface rate transportation would bring large benefits to shippers, 
 consumers and the economy. Antitrust regulation appears to be the only 
 type of public control necessary to guarantee that monopoly losses are not 
 imposed on the economy. 
 
A-46 
 
 (9) 
 
 Haveman, Robert H. and V. Kerry Smith, "Investment, Inflation, 
 Unemployment and the Environment" Chapter IV of Portney, Paul R. , 
 Current Issues in U.S. Environmental Policy (Baltimore: Johns Hopkins 
 University Press, 1978). 
 
 Purpose : 
 
 To assess the reliability of estimates of the economic impact of 
 environmental policy. To separate aggregate impacts from their sectoral 
 composition. To summarize the results of several major studies from the 
 U.S. and other countries and compare results. 
 
 Methodology : 
 
 Two types of modeling techniques have been developed to estimate 
 these direct and indirect impacts. One is the micros imulat ion technique 
 which traces in a very detailed way the changes in demands, outputs and 
 prices which an environmentally imposed additional industry cost would 
 bring about. The second type is a macroeconometric approach which looks 
 at the effects of pollution abatement expenditures on key aggregate 
 economic variables, e.g., prices, real GNP, investment, and employment. 
 The methodology is to compare the analysis of four such studies. One is 
 the Chase Econometric analysis which is periodically provided for CEA/ 
 EPA. This is basically a macroeconomic assessment of pollution abatement 
 expenditures on the economy. The second is a microsimulation model tech- 
 nique developed by Kevin Hollenbach. He applied his model to the stationary 
 source regulations of the 1970 Amendments to the Clean Air Act. Two other 
 studies, one called the Netherland Study and one called the Japanese Study, 
 are basically macroeconometric techniques to assess pollution abatement 
 impacts on the economy. 
 
 The costs of pollution control used in the Chase Econometric Associates, 
 Inc. study are those taken from their study for CEQ/EPA, The Macro-economic 
 Impacts of Federal Pollution Control Programs, 1976 Assessment . 
 
 Assumptions and Constraints 
 
 Each of the various studies surveyed had numerous limitations . The 
 available data had to be molded to fit the models. Basic relationships are 
 not known with reliability. Some effects reflect judgment as much as 
 analysis. The macroeconometric models are aggregate and capable of misleading 
 the investigator with sectoral detail . Assumptions about capital formation 
 in the United States need to be made and they too, differ from study to study. 
 One example is the crowding effect of pollution control expenditures on non- 
 pollution control investments. The ability to separate national from regional 
 impacts is not well developed. 
 
 Conclusions : 
 
 The Chase analysis, an estimate of the incremental pollution control 
 expenditures over the period 1970 to 1983, is as follows. For air pollution 
 abatement costs from 1970 to 1975 for both mobile and fixed source controls, 
 an investment is required of approximately $19.1 billion (billions of 1974 
 dollars). Annual operating and maintenance expenses accumulate to $23.7 
 billion. For water pollution abatement costs over the same period (1970 to 
 1975) , an investment of $8 billion is required with annual operating and 
 
A-47 
 
 (9) 
 
 maintenance expenses of $6.4 billion. For air pollution abatement costs over 
 the period 1976 to 1983, an investment of $53.6 billion is required with 
 annual operating and maintenance expenditures of $123.4 billion. For water 
 pollution abatement costs for the period 1976 to 1983, an investment of $30.7 
 billion is required with annual operating and maintenance costs of $41.6 
 billion. 
 
 Comparison of the effects of this selected environmental program on 
 macroeconomic variables is presented in the table below. 
 
(9) 
 
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A-49 
 
 (10) 
 
 Dorfman, Robert, "Incidence of the Benefits and Cost of Environmental 
 Programs," American Economic Review (February 1977). 
 
 Purpose : 
 
 This paper analyzes the distribution of benefits and costs of 
 environmental programs among segments of the population. 
 
 Methodology ; 
 
 The study presents Department of Commerce estimates of cash flows incurred 
 for pollution control and abatement in 1972, categorized by broad sectors of 
 the economy in which the cost was incurred. All the costs, whatever their 
 point of initial impact, are ultimately defrayed by households. Government 
 expenditures are transmitted by increases in taxes and by reduction in 
 governmental services. Business expenditures are shifted to households, 
 primarily through price increases. The benefits of pollution control programs 
 are very difficult to estimate. The study attempts to estimate benefits from 
 a survey conducted by the Gallup organization. The survey measures benefits 
 by tabulating the amount people are willing to pay for a clean environment. 
 
 Constraints ; 
 
 Benefits of pollution control programs are extremely difficult to 
 quantify. 
 
 Conclusions ; 
 
 The main conclusion is that a clean environment is a superior good and 
 that at any stated price, more people at higher income levels are willing to 
 buy it than are people with lower incomes. The study indicates that 
 environmental protection programs entail a redistribution of income from 
 consumers to producers , and the sums involved may be of substantial magnitude . 
 
A-50 
 
 (11) 
 
 Hendricks, Wallace, "Regulation and Labor Earnings," The Bell Journal 
 of Economics, (Autumn 1977) . 
 
 Purpose : 
 
 This paper investigates the contention that regulation by altering the 
 structure of pricing policies of certain industries, has given unions the 
 ability to raise wages above the level which would have existed in its 
 absence. 
 
 Methodology : 
 
 Data are obtained for seven different occupations covering a range from 
 white collar to unskilled blue collar jobs. The specific occupations were 
 chosen because they are fairly comparable across industries and because 
 reasonable sample sizes can be obtained for most regulated industries. The 
 study uses regression analysis with three alternative specifications for 
 the regulation dummy variable : 
 
 1. A single dummy variable for a regulated industry is 
 used. 
 
 2 . Industries in the regulated sector are divided into 
 three groups based on the extent and type of regulation. 
 
 3. A different dummy variable is assigned to each regulated 
 industry so that they can be compared individually with 
 manufacturing industries . 
 
 Constraints ; 
 
 This hypothesis is not easy to test since there are few (if any) workers 
 in the same occupations in unregulated industries . 
 
 Conclusions : 
 
 The paper attempts to analyze the impact of regulation on the wages of 
 labor of a given "quality." Once quality is controlled, earnings in regu- 
 lated industries are generally lower for the occupations studied than in 
 other industries. But with the possible exception of airlines, truck drivers 
 in trucking, and electricians in radio and television, there is little support 
 for the contention that unions have "special power" in regulated industries. 
 
A-51 
 
 IMPACT OF MULTIPLE 
 
 REGULATIONS ON A 
 
 SPECIFIC GROUP OR 
 
 INDUSTRY 
 
A-52 
 
 (12) 
 
 Arthur D . Little , Inc . , Economic Impact of Environmental Regulations on 
 the United States Copper Industry (Washington, D. C. : Environmental Protection 
 Agency, 1978) . 
 
 Purpose : 
 
 To assess the economic impact of the Clean Air Act Amendments of 1970 and 
 1977 and the Federal Water Pollution Control Act Amendments of 1972 on the 
 domestic copper industry. 
 
 Regulatory Intent : 
 
 The intent of these regulations is to reduce sulfur dioxide emissions 
 during smelting and converting. The regulations require that: The NAAQS 
 are met at all times by use of permanent emissions reduction technology; all 
 new sources must use BACT: significant deterioration of air quality in areas 
 where ambient air quality exceeds the standards is not allowed; and where 
 standards are not met, reasonable progress toward meeting them must be made. 
 Water pollution standards apply to the mining, milling, and refining stages 
 of copper production. 
 
 Methodology : 
 
 Assess the impact of environmental regulations on such key economic 
 parameters as prices, output, employment, international trade, etc. Assess 
 impacts on industry structure and competitive position. Capital and operating 
 and maintenance costs for pollution abatement are determined based on historical 
 data, mainly engineering cost estimates. The study is evaluated over the period 
 1974-87. Costs are in constant 1974 dollars and annualized. 
 
 Assumptions : 
 
 1. All smelters will continue to rely on acid plants, tall stacks, 
 and SCS to meet NAAQS . 
 
 2 . There will be no fundamental change in the cost or nature of 
 pollution control technology. 
 
 3 . Smelters will not expand in ways inconsistent with meeting 
 NAAQS. 
 
 4 - Kennecott at Ely and Phelps Dodge at Douglas will shut down in 
 either 1983 or 1988. 
 
 5 . All operating smelters will invest in fugitive emission control 
 systems . 
 
 6 . There will be little additional permanent control of smelter 
 emissions beyond that currently employed. 
 
 Constraints : 
 
 1. Paperwork and reporting costs are not considered. 
 
 2 . Capital expenditures do not include interest charges for 
 external financing. 
 
 Conclusions : 
 
 1. Under a constrained capacity scenario, this total of capital 
 expenditures and increased operating and maintenance costs equals $2.1 
 billion for the period 1978-87 and $3 billion for the 1974-78 period. 
 
A-53 
 
 (12) 
 
 2. Under the reduced capacity scenario, the costs are $1-9 and $2.8 
 billion, respectively. 
 
 The table below sets out the details of these costs. 
 
 POLLUTION ABATEMENT EXPENDITURES 
 (Millions of 1974 dollars) 
 
 Constrained Capacity Reduced Capacity 
 
 Capital Capital 
 
 Expenditures O&M Total Expenditures O&M Total 
 
 1978-87 $1,162.5 $ 905.2 $2,067.7 $1,013.5 $ 847.8 $1,861.9 
 1974-87 1,875.3 1,103.0 2,978.3 1,726.3 1,045.6 2,771.9 
 
A-54 
 
 (13) 
 
 Thompson, Russell G., James A. Calloway, and Lillian A. Nawalanic , 
 The Cost of Electricity; Cheap Power vs. a Clean Environment (Houston, 
 Texas: Gulf Publishing Company, 1977). 
 
 Purpose : 
 
 To determine the increase in investment needed to meet air and water 
 pollution control levels for electrical utilities. 
 
 Methodology : 
 
 A linear electric power model was used. It was structured to meet a 
 national electrical power demand of 2.5 trillion KWh. It was used to estimate 
 the increased investment needed for compliance of pollution control. Analyses 
 were made for five different levels of pollution control. These cases were: 
 
 1 . power production and waste treatment configuration existing 
 in 1974 
 
 2 . zero discharge of wastewater and particulate removal equipment 
 
 3. case 1 with new plants required to meet new standards on waste 
 discharge 
 
 4. maximum restrictions on air emissions 
 
 5. maximum restrictions on air and water discharge 
 
 Conclusions : 
 
 The total increases in investment for the period 1975-85 in billions of 
 1973 dollars are: 
 
 Case 1 $40.09 
 
 2 43.45 
 
 3 48.17 
 
 4 68.25 
 
 5 67.89 
 
A-55 
 
 (14) 
 
 Commission on Federal Paperwork, Final Summary Report (Washington, D. C. 
 U.S. Government Printing Office, October 3, 1977). 
 
 Purpose : 
 
 To estimate the total costs of federal paperwork . 
 
 Methodology ; 
 
 The methodology of estimating costs was not given. 
 
 Constraints : 
 
 The costs are only estimates. 
 
 Conclusions : 
 
 The total costs of federal paperwork are more than $100 billion annually, 
 Cost estimates to major segments of the economy are: 
 
 Billions of Dollars 
 
 Federal Government 
 
 $43 
 
 Private Industry 
 
 $25-$32 
 
 State and Local Government 
 
 $5-$9 
 
 Individuals 
 
 $8.7 
 
 Farmers 
 
 $.35 
 
 Labor Organizations 
 
 $.075 
 
A-56 
 
 (15) 
 
 Boothe, Joan Norris, Cleaning Up; The Cost of Refinery Pollution 
 Control (New York: Council on Economic Priorities, 1975) . 
 
 Purpose : 
 
 To estimate the capital requirements and total increase in product 
 cost of achieving legislative levels of air and water pollution control 
 in the petroleum refinery industry. 
 
 Methodology : 
 
 The Council on Economic Priorities estimated, based on information 
 about the pollution control share of total refinery costs, the total 
 capital requirements to meet total refinery pollution control. It then 
 subtracted estimates of equipment already in place (estimates obtained 
 from the American Petroleum Institute and the U.S. Department of Commerce) 
 from this. It then estimated costs of new refinery capacity. Product 
 costs were calculated from a model containing depreciation, cost of 
 capital, and operating and maintenance costs. 
 
 Constraints : 
 
 Cost estimating procedures were not given in the text. 
 
 Conclusions : 
 
 The total costs of pollution control investment needs in millions 
 of 1974 dollars are: 
 
 1974-77 1978-83 Total 
 
 Upgrade existing $1,000 $ 800 $1,800 
 
 1974 capacity 
 
 Control new 450 100 550 
 
 1974-77 capacity 
 
 Control new — 1,000 1,000 
 
 1978-83 capacity 
 
 TOTAL $1,450 $1,900 $3,350 
 
 Total added product costs in millions of 1974 dollars are: 
 
 Total 
 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1974-83 
 
 Low $198 $319 $435 $546 $560 $574 $593 $601 $606 $610 $5,042 
 High 236 387 537 682 706 730 759 777 792 806 6,408 
 
A-57 
 
 (16) 
 
 Temple, Barker and Sloan, Inc., Economic and Financial Impacts of Federal 
 Air and Water Pollution Controls on the Electric Utility Industry, Executive 
 Summary . Prepared for the Office of Planning and Evaluation, Environmental 
 Protection Agency, May, 1976. 
 
 Purpose : 
 
 To examine the combined effect of EPA's direct regulatory programs on the 
 electric utility industry. More specifically, the study addresses four impacts: 
 (1) the direct financial impacts of the regulations on the electric utility 
 industry and its customers; (2) the effect on the ability of the investor- 
 owned segment of the industry to finance both its basic needs and the pollution 
 control equipment associated with the regulations; (3) the differences in the 
 impacts on utilities and consumers in different regions; and (4) the secondary 
 impacts upon other industries, especially major industrial users of electricity, 
 
 Regulatory Intent ; 
 
 With respect to the Clean Air Act of 1970, the analysis focuses upon two 
 regulated emissions: (1) sulfur dioxide and (2) total suspended particulates. 
 The electric utility industry is a major emission source of both. In terms of 
 the Federal Water Pollution Control Act, the study analyzes three types of 
 effluent guidelines: (1) thermal effluent, (2) intrainment organisms and 
 (3) chemical effluent. 
 
 Methodology : 
 
 A detailed projection of the industry's baseline conditions is made for 
 the period 1975 to 1980 and 1975 to 1985. Emphasis is placed on a 5-year 
 growth rate in sales, a 5-year growth rate in peak load, capital expenditures 
 since 1974 and external financing since 1974. Baseline projections on annual 
 operating revenues, average consumer charges and average residential customer's 
 bills in dollars per month are also made for the years 1975 to 1980 and 1975 
 to 1985. An estimate of the impacts of pollution control equipment installed 
 to meet federal regulations and state and local regulations is made separately 
 as well as an estimate of the impacts of the installation on projections of 
 generating capacity. The additional costs from compliance with the regulations 
 are modeled into a computerized policy testing model of the electric utility 
 industry developed by the contractor. Revised forecasts are then obtained 
 based on the additional costs attendant with the pollution control procedures . 
 
 Assumptions and Constraints : 
 
 The executive summary of this particular report does not highlight the 
 assumptions and constraints of this study. 
 
 Conclusions : 
 
 The major direct financial impacts are the following: (1) capital 
 expenditures for plant and service will increase by $25 billion during the 
 1975 to 1985 period, (2) capital expenditures in the 1975 to 1980 period 
 will increase by $14.5 billion, (3) external financing during the 1975 to 
 1985 period will increase by $21.9 billion with a $14.5 billion increase 
 during the 1975 to 1980 period, (4) the combined effect upon operating 
 revenues and average consumer charges is projected to be a 6.7 percent 
 increase by 1985, (5) direct impact upon the average residential consumer 
 is to increase his average 1985 bill of $42.40 by $2.80 per month. Direct 
 
A-58 
 
 (16) 
 
 and indirect impacts will cause an increase of approximately $5.80 per month 
 in the average residential customer's cost of goods and services including 
 electricity. An analysis of regional impacts shows that the East North 
 Central region will be the hardest hit in terms of capital expenditures, 
 while New England would be the least impacted. Secondary impacts would, 
 in general, be very small. The total increase in operating and maintenance 
 expenses is estimated at $1.8 billion per year by 1980 and $3.2 billion per 
 year by 1985. The total premium paid by consumers because of federal 
 pollution control regulations is projected to be $3.9 billion in 1980 and 
 $6.5 billion in 1985. Over the entire period of 1975 to 1985 the cumulative 
 cost to consumers will be $40.2 billion. 
 
A-59 
 
 (17) 
 
 Sheppard, W. , et_ aJU Battelle Columbus Laboratories, The Economic Impact 
 of Environmental Regulations on the Petroleum Industry, Phase II Study , a 
 study for the American Petroleum Institute, June 1976. 
 
 Purpose ; 
 
 To provide a reliable, self-consistent data set on the cost of pollution 
 abatement regulations impacting all of the various sectors of the U.S. 
 petroleum industry. Costs occasioned by state and local regulations are 
 included. The final objective is to provide information on incremental energy 
 requirements occasioned by environmental regulations. This study encompasses 
 the base year through 1985 with the base period being the year in which the 
 industry first incurred a cost due to an environmental regulation and thus 
 varying "for different regulations . 
 
 Regulatory Intent : 
 
 The regulations covering this industry include the Clean Air Act, the 
 Federal Water Pollution Control Act, and the Noise Abatement Act. Two 
 regulatory scenarios are considered in this study. The first consists of 
 anticipated regulations, e.g., regulations either in effect now or which the 
 EPA and Battelle believe have at least a 50 percent probability of promulgation 
 by 1985. The second scenario, the restrictive regulatory scenario, includes 
 regulations which are believed to have a reasonable probability, perhaps 10 
 percent of enactment by 1985, if national environmental policy demands more 
 stringent controls . 
 
 Methodology ; 
 
 The study includes federal, state and local regulations and their costs. 
 Three areas were considered: offshore, coastal waters and the outer continental 
 shelf. Capital costs and operating costs were given primary attention. 
 Annualized costs were calculated by adding the cost of financing to the 
 operating costs. Determining environmental costs involves determining the 
 costs of controlling the pollution problem, not necessarily responding to 
 specific regulations . Thus , the methodology entails determining exactly the 
 pollution problem, determining the control technology needed to abate the 
 problem, and estimating the capital costs of the abatement procedure. The 
 estimates of abatement costs come from various sources. The ten most costly 
 regulations impact the following pollution problems: sulfur in gasoline; 
 sulfur in fuel oil; wastewater and rainwater effluent in refineries; brine 
 disposal, onshore and offshore; noise in refineries; lead-free gasoline; 
 vapor controls; sulfur in refinery fuel; gas; prevention of pollution of 
 shallow aquifers during drilling and production; and pollution subsequent 
 to abandonment of wells. After estimates of the cost of each of these pollu- 
 tion problems to be abated are developed, for each senario for onshore, 
 offshore and outer continental shelf areas and for all levels of government, 
 they are summed to get the total costs of pollution control. 
 
A-60 
 
 (17) 
 
 Assumptions and Constraints ; 
 
 The regulations and attendant costs are not included. Where the impact 
 was small, say $10 million total investment, and the difficulty in obtaining 
 figures large, the problem was omitted. Some regulations did not lend them- 
 selves to forecasting. They are not included. Other costs, environmental 
 in nature, were not related to current or expected regulations (e.g., land- 
 scaping and screening of refineries and producing wells) . Some opportunity 
 costs were estimated, but not included in the grand total. No attempt is 
 made to calculate present or future R&D costs related to pollution abatement 
 on the part of either the industry or its suppliers. Much of the cost data 
 collected from various sources showed some inconsistencies. 
 
 Conclusions : 
 
 The table below shows a categorization of annualized costs to 1985 
 expressed in millions of 1974 dollars for specific abatement procedures 
 by sector of the industry. The four sectors analyzed are: exploration 
 and production, transportation, refining, and marketing and distribution. 
 Each of the two scenarios anticipated and restrictive, are shown separately, 
 as are the costs incurred for federal as opposed to state and local regu- 
 lations. The total cost of regulations on the petroleum industry equals 
 $10.3 billion under the anticipated scenario and $17 billion under the 
 restrictive scenario. Of the $10.3 billion expenditure under the anti- 
 cipated scenario, $5.5 billion is due to federal regulations and $4.8 
 billion is due to state and local regulations. Of the $17 billion 
 expenditure under the restrictive scenario, $10.6 billion is due to 
 federal regulation and $6.4 billion is due to restrictive state and local 
 regulations. In terms of industry sectors, refining accounts for large 
 portions of the total cost for abatement. In the anticipated scenario, 
 of the $10.3 billion total expenditure, $7.6 billion is incurred in 
 refining. In the restrictive scenario, of the $17 billion total expendi- 
 tures, $12.7 billion is accounted for in the refining sector of the 
 industry. These figures represent 73.4 and 74.5 percent respectively of 
 expenditures . 
 
(17) 
 
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A-62 
 
 (17) 
 
 Table 9 (continued) summary of estimated costs of regulations considered- cone. 
 
 1985 Annualized Coats 
 
 Pollution Problem 
 
 Regulation 
 
 -o 
 
 Disposal of dirty ballast and bilgevatec 
 
 Concatenation of no-lead gasoline 
 
 Trans-Alaska Pipeline System Environmental 
 Impact 
 
 Spill prevention and cleanup 
 
 Hydrocarbon emissions during tanker 
 and barge loading 
 
 Hydrocarbon emissions from pipeline 
 •torage (Alaska) 
 
 Transportac ton 
 
 Segregated ballasts on new domestic tankers 
 over 70,000 DVT, 1977 
 
 Mo sheen permitted from discharges of oil 
 
 Trans-Alaska Pipeline Authorization Act 
 1973 & 1974 
 
 Segregated ballasts on all new tankers 
 over 70,000 DUT, 1980 
 
 No oil discharge permitted 1983 
 
 Segregate gasolines 1974 
 
 Trans-Alaska Pipeline Authorization 
 Act 1974 
 
 Deepvater Port Liability Fund 1974 
 
 Contingency planning and oil spill 
 cleanup responsibility 1973 
 
 Double hulls on new tank barges 1979 
 
 Double bottoms on new tankers in 
 domestic trad.- 1980 
 
 Retrofit double hulls on existing tank 
 barges 1980 
 
 Maximum at 0.5 psia vapor pressure during 
 Houston/Calveston tanker and barge 
 loading 1973 
 
 Maximum of 0.5 psia vapor pressure during 
 tanker and barge loading at various 
 ports 1978 
 
 Recover vapors or incinerate 1974 
 
 Totals, 
 Transportation 
 
 9.6 
 
 1.1 
 41.7 
 
 2.3 
 
 47.8 
 
 11.0 
 41.4 
 
 4.4 
 
 45.8 
 
 19.: 
 
 205.1 19.7 
 
 .224.8 
 
 9.6 
 1.1 
 
 41.7 
 
 10.9 
 1.6 
 
 2.3 
 
 47.8 
 
 11.0 
 41.4 
 
 4.4 
 
 10.2 
 
 49. i 
 
 45.8 
 
 56.4 
 
 275.9 
 
 56.4 
 
 332.3 
 
(17) 
 
 A-63 
 
 Table 9 (continued) summary of estimated costs of regulations considered -cont. 
 
 1985 Annualized Cost 
 (Million 1974 $) 
 
 Pollution Problem 
 
 Regulatloa 
 
 Refining 
 
 Particulate emissions from Nev source, 1 lb/100 lb coke burned after 
 
 FCC Unit "* rch ' 197A 
 
 All existing retrofit to 1 lb/100 lb 
 coke by 1977, 
 
 All retrofit to 30 lb/hr maximum by 1980 
 
 Submicron particulate emissions **g house or equivalent required by 1983 
 
 on new source 
 
 from FCC unit 
 
 Smol'.c from flares 
 
 CO emissions from FCC units 
 (CO boiler) 
 
 Sulfur in refinery fuel gas 
 
 Sag house or equivalent required by 1980 
 on new source 
 
 Bag house or equivalent in existing units 
 by 1983 
 
 Smokeless flares required, 1977 
 
 New 60-irces, 500 ppm after March, 1974 
 Retrofit 500 ppm by 1977 
 
 New sources, 100 ppm after 1980 
 
 EPA regulation for new refineries 0.1 grain 
 H S/DSCF, 1974 
 
 Retrofit to new source standard by 1977 
 
 Retrofit to new source standard by 1975 
 
 New sources, 90 percent removal, 1977 
 
 Bay Area. 300 ppm, 10 ppm ground level 
 
 300 ppm on existing units by 1980 
 
 100 ppm sulfur lu 1930 
 
 30 ppm sulfur in 1980 
 
 Claus sulfur plant ^ c * 
 
 New source, 99.5 percent recovery by 1977 
 
 All units 98 percent recovery by 1980 
 
 All units 99 percent recovery by 1980 
 
 (a) Not included in total 
 
 (b) Included in cost of ocher regulation 
 
 (c) Hypothetical regulation used to include cost of sulfur plant 
 
 as a separate category. 
 
 SO. emissions from FCC units 
 
 Sulfur in gasoline 
 
 Sulfur oxide emissions 
 Emissions from sulfur plants 
 
A-64 
 
 (17) 
 
 Table 9 (continued) 
 
 SUMMARY OF ESTIMATED COSTS OF RECULATIOHS CONSIDERED -Cant. 
 
 1985 Annualized Coses 
 (Million 1974 $) 
 
 Pollution Problem 
 
 Regulation 
 
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 Sulfur in fuel oil 
 
 Lead in gasoline 
 
 Hydrocarbon vapor from steraga 
 tanks 
 
 Hydrocarbon emission from oil* 
 vater separators 
 
 Wastewater and rainfall 
 effluent (BOD. COD) 
 
 Cadmium 
 
 Cyanide 
 Noise control 
 
 New utilities limited to 0.7 percent 
 sulfur, August 1971 
 
 Existing local sulfur limits (0.3, 0.5, 
 1.0 'percent, etc.) 
 
 Twice existing requirements for 0.3 percent 
 
 S oil 
 Unleaded 91 RON grade available, 1974 
 
 Lead phasa out schedule 
 
 } 
 
 185.9 
 
 Floating roof tanks for 1.5+ psia liquids 
 In new tanks, 1974 
 
 Floating roof on all tanks for 1.5+ 
 psia liquids, 1980 
 
 Covers required on new units, 1977 
 
 Covers required on old units, 1980 
 
 EPA rules for 1977, 1983 
 
 State regulations 
 
 Zero discharge for 1985 
 
 Coastal refineries 320 ug/1: inland 
 70 or 2000, by 1977 
 
 100 ppb fee* cyanide by 1977 
 
 Residential property line, 55 dBA by 1985 
 
 Residential property line, 45 dBA by 1985 
 
 923.7 
 
 (a) 
 
 14.5 
 
 (-2.8) 
 
 1708.5 
 
 (b) 
 
 (a) See footnote page V-122 for comparison with 
 
 a mote recent estimate. 
 
 (b) Not included in total. 
 
 1893.1 
 
 26.6 
 
 173.4 
 
 569.0 
 
 2553.9 
 
 923.7 
 
 14.5 
 
 Ca) 
 
 26.6 
 
 (-2.8) 
 
 (b) 
 
 2267.1 
 
 (-15.9) 
 
 173.4 
 
 >: 
 
 1138.0 
 
 Totals, 
 Refining 
 
 4273.2 
 
 3287.4 
 
 7560.4 
 
 8107.7 I 4506.5 
 
 12694.2 
 
A-65 
 
 (17) 
 Table 9 
 
 (continued) summary of costs of regulations considered (cont'd.) 
 
 1985 Annualized Costs 
 
 r-'lllion 1974 $^ 
 
 Pollution Problem 
 
 Regulation 
 
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 Hydrocarbons from service stations 
 
 Hydrocarbons from distribution 
 
 Oil spills 
 Discharge of oil 
 
 Distribution and Marketing 
 
 Floating-roof tanks for 1.5 + psla liquids 
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 Floating-roof tanks for 1.5 + psla liquids 
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 Unleaded 91 RON grade available, 1974 
 
 Collect vapors from vehicles by balanced 
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 Collect vapors from vehicles by balanced 
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 Collect vapors from vehicles by blower 
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 Collect vapors from vehicles by blower 
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 Collect vapor from station tank filling, 
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 Collect vapors from selected new 
 
 terminals, bulk plants, and trucks, 1980 
 
 Collect vapors from selected existing 
 
 terminals, bulk plants, and trucks, 1976 
 
 SPCC plans 1975 
 
 HPDES permits 1977 
 
 Zero pollutant discharge, 1985 
 
 0.4 
 
 133.7 
 
 8.3 
 
 11.3 
 
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 42.3 
 
 17.6 
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 44.2 
 
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 t 
 
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 42.3 
 
 17.6 
 43.9 
 59.4 
 
 512.5; 
 
 1 
 » 
 
 44.2. 
 
 96.4 
 
 Totals, Distribution 
 and Marketing 
 
 GRAND TOTALS 
 ALL SECTORS 
 
 246.8 370.0 
 
 616.8 
 
 5480.1 4818.7 
 
 325.1 
 
 664-6 
 
 989.9 
 
 1 1 
 
 10.585. 3 1 6449.3 
 
 10,298.8 
 
 17,034.6 
 
 ~I 
 
A-66 
 
 (18) 
 
 Public Interest Economic Center, Who Bears the Cost of Pollution 
 Control?: The Impact on the Distribution of Income of Financing Federally 
 Required Pollution Control . Prepared for the Council on Environmental 
 Quality and the Environmental Protection Agency, August, 1973. 
 
 Purpose : 
 
 The purpose of this study is to determine the way in which the costs 
 of the national environmental program will be distributed among various 
 income groups throughout the country. 
 
 Methodology : 
 
 The pollution control expenditures distributed in the study are taken 
 from The Annual Report of the Council on Environmental Quality, 1973 , and 
 provide a 10-year forecast of the incremental costs of pollution control. 
 Pollution control costs include those for air pollution control, solid 
 waste management, water pollution control and automobile emission control. 
 The distribution of financing between federal, state and local government 
 is then determined over the time period up to and including 1980. These 
 three groups make up one of three categories of costs . The second and 
 third categories include private industry's expenditures and automobile 
 emission controls which are the responsibility of the individual user of 
 automobiles. Two kinds of measures of the way in which costs would be 
 distributed among families are (1) an estimate of the average dollar cost 
 per family unit within each income bracket, and (2) an estimate of the 
 effective tax rate Or the dollar cost expressed as a percentage of total 
 income within any income bracket. The latter is used as a basis for 
 measuring progressivity or regressivity of the distribution. Tax increases 
 are distributed to income classes in proportion to the taxes paid by each 
 group in 1972. All the data are contained in a Brookings Institution's Data 
 Merge File. Survey data are taken from the 1967 Census Bureau's Survey of 
 Economic Opportunity . Using the file, it is possible to obtain the distri- 
 bution of income for any definition of income. With a definition of income 
 it is possible to obtain from the Merge File the effective tax rate within 
 any income bracket for any tax, based on whatever incidence theory is selected. 
 The data in the Brookings file are used to distribute the burden of a tax on 
 the various incidence theories by simulating the effect of any income tax 
 structure on the tax returns of each individual in the sample. The Brookings 
 Merge File also allows the simulation of the distribution of any specified 
 change in taxes. With projections for 1976 and 1980 of income distribution 
 and the distribution of tax payments, changes in effective tax rates and 
 income distribution due to pollution control expenditures are developed. 
 
 Assumptions : 
 
 Each of the specific areas studied has a number of assumptions made 
 about the analysis. We report here only some general assumptions which are 
 made throughout the entire study for reasons of brevity and clarity. The 
 study relies on the best available data, but only looks at primary costs and 
 does not look at secondary costs throughout the economy. In addition, the 
 study does not look at benefits from pollution control expenditures and thus 
 there is a bias in assessing the impact on particular income distributions 
 within the economy. The financing of government expenditures on pollution 
 control is assumed to take place under two alternative methods . One is to 
 increase taxes sufficiently to cover the incremental outlays and two is, of 
 
A-67 
 
 (18) 
 
 course, planning a reduction in government expenditures. It is assumed 
 that local governments finance all capital expenses through bond issues. 
 The first major category of assumptions assumes that the economy is highly 
 competitive with perfect mobility of resources and an inelastic supply of 
 capital. A tax on any form of capital is considered to be shared by all 
 owners of capital in proportion to the income they receive from this source, 
 The second major assumption, more likely in the short run than the first 
 assumption, is that the property tax on improvements is borne by the 
 occupants of residential property and consumers of products produced using 
 commercial and industrial real property. The share of property taxes which 
 falls on land is borne by the owner. The corporate profits tax is borne 
 equally by the owners of capital and by consumers of goods and services. 
 
 Constraints : 
 
 Only the primary costs of pollution control are considered. The 
 secondary costs and other ramifications throughout the economy are not 
 considered. Only the costs and not the benefits of pollution control 
 expenditures are evaluated. 
 
 Conclusions : 
 
 The three tables below provide a summary of the distribution of 
 pollution costs calculated as, cost as a percent of family income for the 
 three different types of financing (all governments, private industry, 
 automobiles) for the years 1972, 1976 and 1980. Note that in each of the 
 years the private industry costs as a percent of family income decline as 
 income increases. Automobile costs also decrease as income increases, 
 excluding the very lowest income category. The all governments pollution 
 control costs change relatively little across income classes and may show 
 a slight tendency to rise toward the very highest income classes. This 
 conclusion is true regardless of the particular assumption made. 
 
(18) 
 
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A-71 
 
 (19) 
 
 URS Research Company, The Economic Impacts on the American Paper 
 Industry of Pollution Control Costs (San Mateo, Cal. : URS, 1975). 
 
 Purpose : 
 
 To estimate the economic impacts of air and water pollution control 
 on the paper industry. 
 
 Methodology : 
 
 A model was constructed of the paper industry that shows the rela- 
 tionship between the industry's cash flow and its capital spending decisions. 
 The model was run for the years 1975-1983 to determine the impact of pollu- 
 tion abatement expenditures on the paper industry in terms of each of 
 needed capacity and its inflationary potential, product shortages, job loss, 
 mill shutdowns, smaller investment in job-creating facilities, and import- 
 export implications . 
 
 The model shows that pollution abatement expenditures are passed through 
 in both higher costs and also lack of supply to meet the demand requirements 
 of a growing economy. 
 
 The general methodology of the model is as follows: 
 
 1. The tonnage demand for 5 or 10 years ahead is forecast. 
 
 f 
 
 2. The capacity needed to meet this demand is forecast. 
 
 3. Capital needed to finance anticipated plant and equipment requirements 
 is forecast. 
 
 4. Capital available from internal sources and from external sources is 
 forecast. 
 
 5. The difference between capital needed and capital available is a measure 
 of the pressure on the industry that will affect capital spending decisions. 
 
 Conclusions : 
 
 1969-1974 Period 
 
 $l-$2 billion of an available $4.7 billion of available funds went for 
 pollution abatement projects. 
 
 $l-$2 billion was equivalent to 4 million tons of new capacity. 
 
 During this period growth of new capacity slowed from 3.8 percent per 
 year to 2.9 percent per year. 
 
 Mills produced few grades of paper during this time in order to avoid 
 downtime caused by shifting machine from one grade to another. This effort 
 to stretch production resulted in general shortages to consumers . 
 
A-72 
 
 (19) 
 
 Forecast for 1975-1984 Period 
 
 1. If costs were to remain at 1974 levels and the industry's profit level 
 remains at the period average: 
 
 a. the industry will be short $16.7 billion to satisfy capital needs, 
 
 b. it will be short $7.7 billion of anticipated pollution abatement 
 expenditure, 
 
 c. this represents a shortage of 18.2 million tons of new capacity by 
 1984. 
 
 2. If it is assumed that paper demand grows an average of 3.8 percent a 
 year during this period and plants operate at 92 percent of capacity: 
 
 a. there will be a shortfall of production of 21.7 million tons; 
 consumer demand will remain unsatisfied, 
 
 b. consumer demand can be satisfied if values in the marketplace rise 
 from $436 per ton in late 1974 to $500 per ton in 1983 at constant prices. 
 This figure is $838 per ton when inflation is included. The average 
 household's expenditure for paper products will rise from $219 per year to 
 $420 in 1983. 
 
 c. U.S. exports will decline and imports will increase. The net 
 change could be as much as $5.7 billion per year. This is a potential loss 
 of 35,000 jobs to American workers during 1978-1983 even if plants produce 
 at 96 percent capacity. 
 
 3. If environmental spending were reduced by half in the period 1975-1983, 
 imports in the economy would be less severe: 
 
 a. shortage of capacity would be 11 million tons instead of 17 million 
 tons, 
 
 b. values per ton would only have to rise to $809 per ton to provide 
 needed capacity, 
 
 c. outlays per household would be $17 less per year. 
 
A-73 
 
 (20) 
 
 Van Alstyne, Carol and Sharon Coldren, The Cost of Implementing 
 Federally Mandated Social Programs at Colleges and Universities , (Washington, 
 D.C. : American Enterprise Institute for Public Policy Research, 1975). 
 
 Purpose : 
 
 To provide quantitative examples of the cost of implementing federally 
 mandated social programs at colleges and universities and their impact on 
 the financial condition of academic institutions. 
 
 Methodology : 
 
 An intensive investigation of six institutions by a small task force 
 was undertaken, emphasizing the definition and measurement of costs, and the 
 quality of data collected. In the analysis, a fundamental distinction was 
 made between the total cost of an activity and the incremental cost 
 specifically attributable to compliance with the federally mandated social 
 programs. The federally mandated social programs included in the study were: 
 
 1. equal employment opportunity 
 
 2. equal pay 
 
 3 . affirmative action 
 
 4. age discrimination 
 
 5 . wage and hour standards 
 
 6 . unemployment compensation 
 
 7. social security tax increase 
 
 8. health maintenance organization 
 
 9. retirement benefits 
 
 10. wage and salary controls 
 
 11. occupational safety and health 
 
 12. environmental protection 
 
 Constraints: 
 
 Because the study was the first of its kind and it required much 
 conceptual work at the outset, it was limited to six institutions. Also, 
 the data showed little comparability from one institution to another. 
 
 Conclusions : 
 
 The cost of implementing the federally mandated social programs at 
 these six institutions has doubled over the last 5 years considerably 
 faster than increases in overall cost of instruction. Several of the 
 federally mandated social programs have contributed substantially to the 
 instability of costs at colleges and universities from year to year and 
 thus compounded the difficulties of financial management and budget 
 balancing. Administering these federal programs is itself costly. Over 
 the decade, these costs have increased from a negligible share to as much 
 as one-eighth to one-quarter of the general administrative costs of these 
 institutions . 
 
A-74 
 
 (21) 
 
 Arthur D. Little, Inc., Steel and the Environment: A Cost Impact 
 Analysis: Report to the American Iron and Steel Institute , (Arthur D. 
 Little, Inc., 1978). 
 
 Purpose : 
 
 To find projected total environmental control capital and operating 
 costs for the years 1978-1985 for the steelmaking and steel forming 
 operations of the steel industry. 
 
 Methodology : 
 
 Models were developed for production costs, capital and operating 
 costs, and the cost impact of the proposed environmental regulations. Data 
 were collected containing information on operating cost factors and 
 in-place environmental control facilities. The environmental control model 
 was revised to reflect current and projected changes in environmental regu- 
 lation. Engineering estimates were made of capital and operating costs 
 necessary for central systems needed to achieve compliance with current and 
 projected regulations. The costs of environmental control were grouped 
 through 1979 (near -term) and through 1985 (long-term) . 
 
 Constraints: 
 
 The models were judged to have the following accuracies: 
 
 • calculated primary iron and sheetmaking costs + 5-10 percent 
 
 • industry near-term environmental control costs +_ 10 percent 
 
 • long-term environmental control costs +_ 20-25 percent 
 
 • steel forming products costs + 10-15 percent 
 
 The analysis does not include control costs for carbon monoxide, nitrogen 
 oxides, open dust source emissions, water quality related costs, monitoring 
 and analytic costs or Occupational Safety and Health Administration costs. 
 
 Conclusions : 
 
 The costs of environmental control are summarized in the following 
 tables. 
 
(21) 
 
 A-75 
 Table 13 
 
 DISTRIBUTION OF CAPITAL REQUIREMENTS FOR ENVIRONMENTAL CONTROL 
 
 OF THE STEEL INDUSTRY OF THE UNITED STATES 
 
 BY TYPE OF POLLUTION 
 
 {millions of 1978$) 
 
 Type 
 
 Air 
 
 Fugitive (process and 
 material handling) 
 
 Water (including 
 priority pollutants) 
 
 Thermal 
 
 Storm Runoff 
 
 Total 
 
 Capital Invested in 
 Environmental Control Facilities 
 In-place in 1976 
 
 Total Capital Still Needed 
 
 Near-Term 
 
 (through 1979) 
 
 Compliance Capital* 
 
 (including in-place) 
 
 $2,800 (46.5%) 
 
 3,220 (53.5%) 
 
 $6,020 (100.0%) 
 
 Long-Term 
 
 (through 1985) 
 
 Compliance Capital* 
 
 (including near-term) 
 
 $2,930 (29.8%) 
 
 1,880 
 
 (19.2%) 
 
 3,970 
 
 (40.4%) 
 
 150 
 
 (1.5%) 
 
 890 
 
 (9.1%) 
 
 $9,820 (100.0%) 
 
 4,900 
 
 $4,920 
 
 'These capital costs do not include provision for control of solid waste, carbon monoxide, nitrogen 
 oxides, open dust source emissions, or water quality, monitoring and analysis, or unusual site- 
 specific expenditures. 
 
 Table 14 
 
 STEEL INDUSTRY OPERATING COSTS ASSOCIATED WITH ACHIEVING 
 COMPLIANCE WITH LONG-TERM ENVIRONMENTAL CONTROL REGULATIONS, 
 
 BY TYPE OF POLLUTION 
 
 Type 
 
 Million 1976$ 
 
 % 
 
 Air 
 
 765 
 
 35.3 
 
 Fugitive (process and 
 
 
 
 material handling) 
 
 320 
 
 14.8 
 
 Water (including 
 
 
 
 priority pollutants) 
 
 440 
 
 20.3 
 
 Thermal 
 
 30 
 
 1.4 
 
 Storm Runoff 
 
 30 
 
 1.4 
 
 Solid Waste 
 
 580 
 
 26.8 
 
 Total 
 
 2165 
 
 100.0 
 
 (per year) 
 
 Oper. & Maint. Capital Recovery Charges 
 
 Million 1976$ % 
 
 435 29.9 
 
 280 19.2 
 
 590 40.6 
 
 20 1.4 
 
 130 8.9 
 
 0.0 
 
 1455 100.0 
 
 Total 
 
 Million 1976 $ 
 1200 
 
 600 
 
 % 
 33.2 
 
 16.6 
 
 1030 
 
 28.4 
 
 50 
 
 1.4 
 
 160 
 
 4.4 
 
 580 
 
 16.0 
 
 3620 
 
 100.0 
 
(21) 
 
 A-76 
 Table 15 
 
 SUMMARY OF IRON AND STEEL INDUSTRY CAPITAL REQUIREMENTS 
 
 (billions of 1978$) 
 
 
 
 1978-1985 
 
 
 Per Am 
 
 num 
 
 Capital Utilization 
 
 Zei 
 
 o Growth 
 
 2% Growth 
 
 Zero Growth 
 
 2% Growth 
 
 Environmental Control 
 
 
 4.9 
 
 
 8.0 
 
 0.6 
 
 1.0 
 
 Replacement 
 
 
 24.0 
 
 
 24.0 
 
 3.0 
 
 3.0 
 
 Expansion 
 
 
 
 
 
 12.2 
 
 
 
 1.5 
 
 Non-Steel Operations 
 
 
 
 
 (not ava 
 
 ilable) 
 
 
 Working Capital 
 
 
 
 
 (not available) 
 
 
 28.9 44.2 3.6 5.5 
 
 Projected Industry Cash Flow is $3.3 billion per annum 
 
 Note: In addition to no allowances for capital costs for non-steel operations and working 
 capital, this table does not include capital costs for control of solid waste, carbon 
 monoxide, open dust source emissions, or water quality, monitoring and analysis, 
 or unusual site-specific expenditures. 
 
 Table 16 
 
 PROJECTED STEEL INDUSTRY CAPITAL COSTS OF 
 ENVIRONMENTAL CONTROL, BY TYPE 
 (millions of 1978$) 
 
 Type 
 
 Air 
 
 Fugitive (process and 
 material handling) 
 
 Water (including 
 priority pollutants) 
 
 Thermal 
 Storm Runoff 
 
 Tota! 6,020 5.900 9,820 11.100 
 
 'Minimum value used in 1975 study. 
 
 
 
 
 Stage II** on 
 
 Near-Term 
 1976 Model 
 
 Stage I** 
 1972 Model 
 
 Long-Term 
 1976 Model 
 
 Existing Facilities 
 1972 Model 
 
 2,800 
 
 2,700 
 
 2,930 
 
 2.700 
 
 
 
 — 
 
 1,880 
 
 3.200 
 
 3,220 
 
 3,200 
 
 3,970 
 
 3.800 
 
 
 
 — 
 
 150 
 
 500 
 
 — 
 
 — 
 
 890 
 
 900* 
 
 Compliance Stages 1975 Study 
 
 Stage I Stage II 
 
 Solid Waste Disposal 
 
 (oswntially as practiced in 1972) x x 
 
 Air (to meet 1975 primary standards) x x 
 
 Air - Fugitive Emissions 
 
 Water - 1977 EPA Guidelines x x 
 
 Water - 1983 EPA Guidelines 
 Thermal Pollution Control 
 Total 
 
 x 
 x 
 
 XX XX 
 
A-77 
 
 (22) 
 
 Tuccillo, John, "Taxation by Regulation: The Case of Financial 
 Intermediaries," The Bell Journal of Economics , Autumn 1977, Vol. VIII, 
 No. 2. 
 
 Purpose : 
 
 To estimate the implicit tax levied by the regulatory system on the 
 following six financial services: 
 
 1. Full service powers of commercial banks, 
 
 2. Prohibition of interest on demand deposits, 
 
 3. Differential interest rate ceilings, 
 
 4. Differential reserve requirements, 
 
 5. Access to borrowing facilities, and 
 
 6. Ability to operate as mutual organizations. 
 
 The purpose is to determine the additional costs imposed on mutual savings 
 banks and savings and loan associations because they are not regulated in 
 the same manner as commercial banks. 
 
 Regulatory Intent : 
 
 Regulations on financial intermediaries usually take the form of 
 regulations on both price for inputs and outputs and on output itself. The 
 former type, most apparent in regulation Q ceilings on deposit interest rates 
 and usury ceilings, is intended to produce a subsidy which has the effect of 
 reducing the costs of funds to depository institutions. The latter type, 
 which constrains the portfolio composition of these depository institutions, 
 tends to allocate the flow of funds through these intermediaries to the real 
 sectors of the economy. 
 
 Methodology : 
 
 The impact of regulation is estimated by translating regulatory 
 requirements into measures of implicit taxes and subsidies. This is done 
 by calculating the effective rates of federal taxation using a redefined 
 economic income base. This economic income base includes a standard defini- 
 tion of income, but is expanded to include the income effect of those 
 aspects of regulation which act as subsidies or taxes. For example, a 
 subsidy is granted for savings and loan associations because of lower reserve 
 reqirements. The methodology for determining a subsidy is to calculate the 
 difference in reserve rates by subtracting from the percentage of deposits 
 held by banks as non-earning reserves, the ratio of cash to deposits in 
 savings and loan associations in a particular chosen size class. This result 
 gives the percentage of S&L deposits which would have to be transferred into 
 non-earning assets if they were regulated as a bank. This figure has been 
 multiplied by the savings deposits to total assets to arrive at the percent- 
 age of assets which would have to be transferred to non-earning categories 
 if reserve requirements were similar to those of banks. The return to the 
 earning asset portion of portfolios is then calculated by dividing total 
 portfolio return by the ratio of earning assets to total assets. Given this 
 figure, we now determine the additional rate of return necessary on the 
 portfolio to allow both this transfer to reserves to be made, and to maintain 
 the rate of return to the portfolio by multiplying the percentage of earning 
 assets necessarily transferred into sterile reserves by the rate of return 
 
A-78 
 
 (22) 
 
 on earning assets. This can now be translated into an income effect, i.e., 
 the extra income which would have to be generated by savings and loan asso- 
 ciations to maintain gross portfolio income in the face of reserve require- 
 ments equal to those of banks . 
 
 The following steps are undertaken to calculate the corresponding 
 adjustments and effective tax rates. Since this regulation generates a 
 subsidy to S&L's because the reserve requirements are lower, it grants an 
 increase in economic income as defined herein. This increase is added to 
 economic income and effective rates are recalculated. Full-service powers 
 of banks, especially the issuing of demand deposits, represent a competitive 
 advantage in that they can attract customers through non-price means. This 
 advantage requires higher prices on the part of thrifts for these institu- 
 tions to remain competitive. Thrifts, thus, need to earn a higher gross 
 income to match the net income of banks . This is a negative imputation to 
 the economic income of thrifts in recalculating effective tax rates. 
 
 Assumptions and Constraints : 
 
 One, the analysis ignores all changes in relative prices generated by 
 potential regulatory changes. This means that changes in incomes are net 
 of any second order income changes which would be generated by changing 
 relative prices. Income effects may be overstated. Two, financial markets 
 are characterized by quick and efficient adjustment to regulatory constraint. 
 If thrifts are constrained from competing with commercial banks with respect 
 to full services, they quickly invent new liability instruments. As far as 
 financial intermediaries can circumvent regulation, the estimates presented 
 below are overstated. 
 
 Conclusions : 
 
 The result of the comparison of the differential reserve requirements 
 on savings and loan associations with commercial banks indicates that savings 
 and loan associations would have to generate between 6.6 percent and 8 percent 
 more income if they were to be subject to commercial bank reserve require- 
 ments in order to maintain the same net income. These figures vary by asset 
 size class of the thrift institution. The effect of prohibition of services 
 on S&L's has an income effect of between 6.5 percent and 7 percent. 
 Given the differences in prohibition of services, reserve structure 
 borrowing privileges and the effect of mutual form of organizations, the 
 total impact of implicit taxes and subsidies on effective federal tax rates 
 vary from -.4 to +.6 over the different asset size classes of these 
 institutions. The interest prohibition on demand deposits and the borrowing 
 privileges of commercial banks decreases the tax and subsidy value on 
 effective federal tax rates for commercial banks in the area of approximately 
 -1.85 percent. 
 
 This latter impact, however, is offset somewhat by the ability of 
 thrifts operating under a mutual form of organization to raise capital 
 through deposits and retained earnings as contrasted with the banks 
 necessity to issue equity shares. S&L's also have access to advances from 
 the Federal Home Loan Bank system which carry lower interest rates and longer 
 terms than do advances to banks from the Federal Reserve system. 
 
A-79 
 
 (22) 
 
 The major advantage to banks under the regulatory system is their full- 
 service powers. This advantage can be evaluated in terms of 6.5 percent to 
 7 percent of the income of thrifts in 1973. The major advantage for thrifts 
 under the regulatory system is their lower reserve requirements. This 
 advantage can be evaluated at about 6.5 percent of thrift income for 1973. 
 
A-80 
 
 IMPACT OF A SINGLE 
 REGULATION ON THE 
 NATIONAL ECONOMY 
 
A-81 
 
 (23) 
 
 Hanke, Steve H. and Ivars Gutmanis, "Estimates of Industrial Waterborne 
 Residuals Control Costs: A Review of Concepts, Methodology, and Empirical 
 Results" in Peskin, Henry M. and Eugene P. Seskin, Cost Benefit Analysis and 
 Water Pollution Policy , (Washington, D.C. : The Urban Institute, 1975). 
 
 Purpose : 
 
 To bring together a series of studies that have attempted to estimate 
 the costs of industrial water pollution abatement studies that have been 
 conducted or sponsored by the Environmental Protection Agency. 
 
 Methodology : 
 
 The conceptual methodology for analyzing industrial water pollution 
 abatement was developed by researchers at Resources for the Future and 
 includes the following objectives: 
 
 To determine : 
 
 1. The factors which influence residuals generation in an industry and 
 that industry's quantitative response to variations in those factors. 
 
 2. The range of options available to an industry to respond to increasingly 
 stringent restraints on the discharge of residuals to the environment. 
 
 3. Models of residuals generation for different industries for use in 
 analyzing regional residuals management. 
 
 4. The extent to which the biological, physical, technological, and economic 
 interrelationships among the types and states of residuals require that all 
 residuals be considered simultaneously in determing the optimal residuals 
 management strategy for a plant. 
 
 5. The proportion of total costs represented by net residuals management 
 costs taking all impact upon other costs into consideration. 
 
 Most of the industrial waterborne residual cost estimates undertaken 
 by government and non-government have used a cost per unit of wastewater flow 
 methodology. The following five steps specify that methodology: 
 
 1. For each industry sector determine the volume of wastewater generated 
 per unit of time. 
 
 2. Differentiate total wastewater volumes by size of hydraulic loadings 
 per unit of time. 
 
 3. Determine the required residual control processes for each industry 
 sector to achieve the desired level of control. 
 
 4. Determine cost functions for capital, and operation and maintenance 
 expenditures, relating these to the volumes of wastewater flow per unit of 
 time. 
 
A-82 
 
 (23) 
 
 5. Multiply the appropriate cost estimates by the corresponding wastewater 
 volumes to determine total capital, and operating and maintenance costs for 
 each industry sector. 
 
 A comparison of several studies on how they approach this particular 
 methodology is included in this paper. 
 
 Assumptions and Constraints : 
 
 The most serious shortcoming of this particular methodology is that its 
 use is limited to estimating end-of-pipe treatment costs. No information is 
 provided on the changes in end products or intermediate transfers. There is 
 a paucity or outright absence of empirical cost information. Only gross 
 costs are estimated and net residual treatment costs remain absent. This 
 precludes meaningful analyses of public policies. 
 
 Conclusions : 
 
 A comparison of the cost estimates as published in The Economics of 
 Clean Water , a report prepared in 1972 and again in 1973, by the Environmental 
 Protection Agency, shows that capital cost estimates for water pollution 
 control for 1977 in millions of 1971 dollars shows a 30 percent decrease in 
 1973 over 1972. That is, expenditures for 1972 for all industries were 
 estimated to be $11.9 billion and for 1973 $8.3 billion. The cost functions 
 used to calculate cost per unit flow appear to be almost identical in the 
 1972 and 1973 reports. The cause for the large difference in estimates 
 results from the number of manufacturing establishments included and from the 
 size distribution of these establishments as measured in terms of wastewater 
 volumes. 
 
 McGraw-Hill conducted a survey of pollution control expenditures by 
 industry undertaken annually since 1967. The study was published in 1972. 
 The study does not differentiate between expenditures for air pollution 
 control, water pollution control and other forms of environmental protection. 
 A more disaggregated survey was used by the Conference Board in 1971 to 
 estimate industrial water pollution abatement expenditures. Another study 
 published by the National Canners Association and American Food Institute 
 uses a questionnaire survey to determine the costs of water pollution abate- 
 ment. Cost per unit of flow methodology was used to determine the costs. In 
 terms of aggregate treatment costs an estimate of $11 million in 1972 was 
 made for annual costs. That estimate was expected to be $24 million (in 1972 
 dollars) for the year 1975. Capital costs of $58 million were expected to be 
 $127 million (in 1972 dollars) in 1975. For irrigation costs annual expen- 
 ditures of $13 million in 1972 were expected to increase to $20 million 
 annually by 1975. Capital costs of $79 million in 1972 were expected to 
 reach $122 million by 1975 (in 1972 dollars) . Municipal disposal and pre- 
 treatment costs were expected to be $10 million annually in 1972 and 
 increase to $24 million annually by 1975. Industry costs for in-plant abate- 
 ment were estimated to be $6 million annually for 1972 and $16 million 
 annually for 1975. 
 
A-83 
 
 (24) 
 
 Thieblot, Armand J., Jr., The Davis-Bacon Act , Labor Relations and 
 Policy Series Report No. 10 (Philadelphia: University of Pennsylvania, 
 1975) . 
 
 Purpose : 
 
 To estimate the increased costs to the federal government caused by 
 payment of prevailing wages and fringe benefits required by the Davis-Bacon 
 Act. 
 
 Regulatory Intent : 
 
 The Davis-Bacon Act requires contractors doing work for the federal 
 government to pay their employees wage rates and fringe benefits that are 
 no less than those prevailing in the local area. These wages are determined 
 by the Department of Labor. 
 
 Methodology : 
 
 Thieblot measured the difference in bids and rebids when the Davis - 
 Bacon Act was suspended for a little over a month in 1971. At the time of 
 the suspension all bids received on construction projects were sent back 
 to be rebid. Thieblot measured the difference between the lowest bid and 
 the lowest rebid. 
 
 Constraints : 
 
 All the initial bids became public knowledge before rebidding, which 
 probably influenced the rebidding decision process. There was probably a 
 considerable amount of gamesmanship, and during the 45-day period between 
 bids, inflation may have increased the bids by 1 to 2 percent. 
 
 Conclusions : 
 
 The difference between the original low bids and the low rebids was 
 -.63 percent. For a federal government expenditure of $38 billion for 
 construction work this would represent a savings of approximately $240 
 million. When corrected for inflation during the suspension period, the 
 savings would rise to between $620 million and $1 billion. 
 
A-84 
 
 (25) 
 
 National Commission on Water Quality, Staff Report to the National 
 Commission on Water Quality (Washington, D.C. : U.S. Government Printing 
 Office, April 1976). 
 
 Purpose : 
 
 To investigate and study all aspects of the economic, social, and 
 environmental effects of achieving the Federal Water Pollution Control Act 
 Amendments of 1972, Public Law 92-500. 
 
 Regulatory Intent : 
 
 To reach by July 1, 1983 a level of water quality that will provide 
 for protection and propagation of fish, shellfish, and wildlife and will 
 provide recreation in and on water. Also to reach by 1985 the elimination 
 of pollutant discharge into navigable waters . 
 
 Methodology : 
 
 Costs were determined for two different methodologies: 
 
 BAT — best available technology economically achievable. 
 
 BPT — best practicable waste treatment technology over the life of the 
 equipment. 
 
 Two types of industry price impacts were calculated: 
 
 Direct Price Impacts — calculations were based on a detailed static 
 analysis of each industry market and plant-by-plant costs. 
 
 Cumulative Price Impacts — calculations were based on each industry's 
 pollution abatement costs, changes in costs of goods and services purchased 
 due to pollution control, and indirect effects on productivity, inflation, 
 and aggregate demand. 
 
 For publicly-owned treatment works two cost scenarios were examined. 
 The first assumed 72 percent federal funding for treatment plants and 28 
 percent for interceptor sewers and was based on projected EPA outlays. 
 The second assumed funding of all needs except treatment of separate storm 
 sewers by 1985. 
 
 Macroeconomic impacts were calculated using the Wharton Econometric 
 Forecasting Model. 
 
 Conclusions : 
 
 Accummulated capital and O&M costs to industry are as follows: 
 
 Capital 
 
 O&M 
 
 BPT 
 
 BAT (additional) 
 
 New Sources (until 1983) 
 
 $36.0 billion 
 $23.2 billion 
 $19.9 billion 
 
 $6.8 billion 
 $5.8 billion 
 
A-85 
 
 (25) 
 
 The Commission estimated two different capital costs. Technology 
 studies represent the cost of necessary hardware and installation, and 
 economic studies consider the economic dynamics of the separate industries 
 studied and their likely response to treatment requirements. These two 
 estimates of capital costs for various industries are: 
 
 Capital Costs— 1977 
 (billions of 1975 dollars) 
 
 Technology 
 
 Economic 
 
 Iron & Steel 
 
 Organic & Miscellaneous Chemicals 
 
 Inorganic Chemicals 
 
 Petroleum Refining 
 
 Pulp & Paper 
 
 Metal Finishing 
 
 Fruits & Vegetables 
 
 Plastics & Synthetics 
 
 Textiles 
 
 Steam Electric Power 
 
 Feedlots 
 
 All Other Industry 
 
 $ 2.91 
 
 $ 2.08 
 
 4.29 
 
 4.29 
 
 .52 
 
 .81 
 
 1.05 
 
 .83 
 
 2.64 
 
 2.19 
 
 14.14 
 
 9.13 
 
 .44 
 
 .17 
 
 .16 
 
 .21 
 
 .54 
 
 .46 
 
 3.74 
 
 3.74 
 
 .71 
 
 .43 
 
 10.94 
 
 11.66 
 
 TOTAL 
 
 $42.08 
 
 $36.00 
 
 There will be significant plant closings in Pulp & Paper, Metal Finishing, 
 Textiles, Fruits & Vegetables, Feedlots, and Meat Packing. These will be 
 mainly restricted to old, small, single-plant firms, many of which could not 
 remain economically viable even without pollution control requirements. 
 
 Regional impacts will be most severe in the Northeast, and to some 
 extent, the Middle Atlantic and North Central regions. 
 
 Two scenarios were examined for publicly-owned treatment works. The 
 first was based on projected EPA outlays and the second based on the funding 
 of all needs except control or treatment of separate sewer flows by 1985. 
 Total federal, state, and local government capital expenditures in 1973 
 dollars were $60.9 billion for the first scenario and $158.1 billion for the 
 second. When the effects of inflation are included the total federal share is 
 estimated to be $52.3 billion for the first scenario and $184.4 billion for 
 the second. 
 
 The macroeconomic effects are: 
 
 Inflation will be 9 percent above baseline projects by 1985 for an 
 annual rate of .9 percent. 
 
 Unemployment will be lower by .9 percent in 1977-80 and then much higher 
 in 1984-85. 
 
 Plant equipment investments and housing impacts will be midly negative. 
 
A-86 
 
 (25) 
 
 Some benefits of water pollution control were also calculated. These 
 are : 
 
 The value of certain types of real estate near selected water bodies 
 will increase in value by $92.5 million annually in 1985-2000. 
 
 Reopening of beaches will result in new flows of economic activity 
 estimated to be between $158-$521 million in 1985 to between $121-$701 
 in 2000. 
 
 Commercial and recreational marine fishing will share economic gains 
 of $3.9 billion in 1985 and $5.2 billion in 2000. 
 
 Freshwater fishing will show gains of between $220-$521 million in 1985 
 to $217-$701 million in 2000. 
 
 Boating will increase to between $498-$l,200 million in 1985, to between 
 $528-$l,700 in 2000. 
 
 Discounting by percent in 1972-85 to 4 percent in 1972-2000 results 
 in a cumulative worth of between $33.3 and $88.1 billion. Discounting by 
 4 percent to infinity results in a worth of approximately $200 billion. 
 
A-87 
 
 (26) 
 
 Mintz, Use, U.S. Import Quotas: Costs and Consequences , (Washington, 
 D.C.: American Enterprise Institute, 1973). 
 
 Purpose : 
 
 To estimate the economic costs of quotas on sugar and textiles. 
 
 Methodology : 
 
 Estimates of the sum of four costs attributable to import quotas were 
 made. These costs are: 
 
 Transfer Costs - The redistribution of income from consumers to 
 
 producers . 
 
 Import Costs - The difference in receipts received by importers 
 
 and exporters between the quantity of goods under 
 the quota and those receipts which would be 
 received at the lower price without quotas. 
 
 Production Costs - The costs of misallocating resources in production 
 
 of goods which could be imported at a cheaper price . 
 
 Consumption Costs - The cost of consumers reducing their consumption 
 
 of the goods below what they would consume if there 
 were no quotas . 
 
 Constraints : 
 
 Estimates of costs were based on estimated data from other studies. 
 Relevant data for the textile industry were not avilable and thus the 
 estimates presented are very rough. 
 
 Conclusions : 
 
 Costs in Millions of Dollars 
 
 Sugar 
 
 Import Cost $265 - $317 
 
 Production Cost $ 79 - $110 
 
 Consumption Cost $ 10 - $ 25 
 
 SUBTOTAL $354 - $451 
 
 Transfer Cost $227 - $256 
 
 TOTAL $581 - $707 
 
 Above are the estimates of the costs of import quotas on sugar. The 
 first three costs were to total cost to the U.S. economy. Adding transfer 
 costs to this total gives the total users costs of sugar quotas. 
 
 Costs for the textile industry could not be broken out due to data 
 limitations. Rough estimates of the total cost of textile quotas range from 
 $600 million on cotton goods in 1970 to $1,100 million in 1976 and $1,900 
 million on woolen and manmade textiles in 1972 to $3,600 million in 1976. 
 
A-88 
 
 (27) 
 
 Douglas, George W. and James C. Miller, Economic Regulation of Domestic 
 Air Transport: Theory and Policy (Washington, D.C. : Brookings Institution, 
 1974) . 
 
 Purpose : 
 
 To estimate the total costs to consumers of CAB regulation of domestic 
 trunk air carriers . 
 
 Methodology : 
 
 A model was developed to measure air passengers' full cost under present 
 regulations and lowest possible cost. This was then aggregated across all 
 travelers to estimate total costs for 1969. 
 
 Constraints: 
 
 The data available was excessively aggregated and certain costs may 
 have reflected arbitrary cost allocation sales. 
 
 Conclusions : 
 
 During 1969 it was estimated that air passengers paid between $366 
 million and $538 million in excess fares. If adjustments were made for 
 passenger purchased reduction in delay time, the total deadweight welfare 
 loss in 1969 would have been between $248 and $356 million. 
 
A-89 
 
 (28) 
 
 Keeler, Theodore, "Airline Regulation and Market Performance," The Bell 
 Journal of Economics and Management Science , (Autumn 1972) . 
 
 Purpose : 
 
 To determine the effects of domestic airline regulation on the fares 
 and market efficiency of the American air transport industry. 
 
 Methodology : 
 
 A model to estimate long run airline costs was developed. The model 
 is then used to predict hypothetical unregulated (cost-based) fares for 30 
 major domestic air travel markets. As a test the model is used to predict 
 fares on the relatively unregulated California intrastate routes. 
 
 Constraints : 
 
 For pooled cross-section and time-series data, ordinary least squares 
 will not necessarily be the most efficient possible estimates. 
 
 Conclusions : 
 
 The results of this study show that regulation has indeed had a strong 
 effect on airline fares. Using data for 1965 this study finds a markup of 
 45-84 percent of regulated over unregulated fares. Airline executives claim 
 that in the absence of regulation, imperfect competition would prevail, 
 putting everyone into bankruptcy. This alledgedly happened in the 1930 's 
 without regulation. It has been argued by some that airline regulation is 
 basically a government-enforced cartel existing for the benefit of the 
 regulated firms. 
 
A-90 
 
 (29) 
 
 Davis, Karen, National Health Insurance (Washington, D.C. : Brookings 
 Institution, 1975) . 
 
 Purpose : 
 
 To examine the distribution of benefits and costs associated with the 
 seven major national health insurance plans embodied in proposed legislation. 
 
 Methodology : 
 
 This study reports the results of a 1974 study by the U.S. Department 
 of Health, Education and Welfare entitled Estimated Health Expenditures Under 
 Selected National Health Insurance Bills . The study summarizes the approaches 
 and costs of the following proposed health insurance plans: 
 
 1. The American Medical Association Plan 
 
 2. The Long-Ribicoff Bill 
 
 3 . The Administration Plan 
 
 4. The American Hospital Association Plan 
 
 5. The Health Insurance Association of America Plan 
 
 6. The Kennedy-Mills Plan 
 
 7. The Health Security Act (AFL-CIO) Plan 
 
 The study also summarizes the costs of no national health insurance plan. 
 
 f 
 
 Attached are a set of tables which set out the specifics of each of the 
 plans as they existed in 1974. 
 
(29) 
 
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 Assumptions and Constraints : 
 
 One basic assumption underlying the HEW cost estimates is that the 
 elasticity of demand for medical serivces with respect to the co-insurance 
 rate is equal to -.2. A more serious qualification is that the HEW studies 
 assume that the price controls of Phase IV of the 1971 to 1974 Economic 
 Stabilization Program are in effect regardless of the provisions of a bill 
 for controls on prices. This means that proposals whose cost controls are 
 not as strong as those of Phase IV are shown to be relatively less expensive 
 than would actually be. One aspect of cost that is not thoroughly treated 
 by the HEW study is the indirect cost of national health insurance resulting 
 from current tax provisions. The study does not attempt to estimate 
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 and subsidies under current tax law. The HEW study did not indicate the 
 methodology used to estimate the number of people who would be covered 
 under any of the plans. Nor does the study indicate what assumptions were 
 made to estimate the extent of supplementary private insurance coverage . 
 
 Conclusions : 
 
 Below are listed a number of tables which show federal, state and 
 private expenditures for alternative national health insurance plans based 
 on populations and prices projected in 1975. A comparison of each of the 
 sponsored plans with no national health insurance plan is included. In 
 addition, one table shows federal tax subsidies under alternative national 
 health insurance plans for 1975. A third table shows the increases in 
 federal costs under alternative national health insurance plans by source 
 of increase in 1975. A fourth table shows the employer contributions and 
 subsidies, enrollment and premiums for alternative national health insurance 
 plans in 1975. 
 
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 (30) 
 
 Peltzman, Sam, Regulation of Pharmaceutical Innovation: The 1962 
 Amendments , (Washington, D.C. : American Enterprise Institute, 1974) . 
 
 Purpose : 
 
 To estimate the net benefits produced by the 1962 amendments to the 
 Food, Drug, and Cosmetic Act — the amendments that instituted the efficacy 
 requirement. 
 
 Regulatory Intent : 
 
 The 1962 amendments to the Food, Drug, and Cosmetic Act require the 
 manufacturer to prove to the Food and Drug Administration that a drug has 
 the curative powers the manufacturer claims for it. 
 
 Methodology : 
 
 The study begins by determining how many potential new drugs were not 
 developed and marketed past 1962 because of the amendments. Then a 
 consumer surplus approach is used to estimate net benefits of the amendments 
 by assuming that the amendments eliminate exaggerated demand for a drug. 
 The true demand curve is established when the drug is brought to market. 
 The net benefit to consumers is equal to the consumers surplus received by 
 consumers for purchasing the appropriate quantity given the true demand 
 curve. If the exaggerated demand is indeed the true demand, the costs to 
 consumers is equal to the consumers surplus given the exaggerated (but true) 
 demand minus the consumers surplus from the amendment-restricted demand. 
 
 Assumptions : 
 
 A number of assumptions, favorable to the 1962 amendments, were made: 
 
 1. Unsafe drugs are kept off the market post-1962 amendments but were 
 not kept off the market prior to the amendments. 
 
 2. An additional 2 years of delay in marketing is caused by the amend- 
 ments although in reality this delay may be as long as 6 years. 
 
 3. The amendments have no impact on prices. 
 
 Constraints : 
 
 1. In determining the value of drug safety, it is necessary to place 
 a value on human life . 
 
 2. There is no expert agreement on whether the fraction of post-1962 
 drugs deemed ineffective is different than the pre-1962 fraction. 
 
 3. Separation of data into therapeutic categories may not be precise. 
 
 Conclusions : 
 
 1. The number of new chemical entities making the market post-1962 
 amendments is reduced by more than one-half. 
 
 2 . The cost of developing and bringing a new drug to market has 
 doubled because of the amendments . 
 
A-105 
 
 (30) 
 
 3 . The amendments have had little effect on removing inefficacious 
 drugs from the market because the pre-1962 market was sufficiently well- 
 disciplined to impose penalties on the producer of an inefficacious drug 
 to warrant its removel from the market. 
 
 4. Because fewer drugs are brought to the market post-1962, drug 
 prices are higher than they would be without the amendments . The reduced 
 price competition impairs a $50 million cost on the sick. 
 
 5. The amendments have probably kept safe drugs off the market or 
 caused sufficient delays in marketing to have caused real costs to the sick. 
 
 6 . The lower post-1962 demand for new drugs resolves into reduced 
 net benefits to drug consumers of $300-$400 million annually from a reduced 
 flow of new drugs and information about them. 
 
 7. An additional $15 million can be attributed to the FDA implemen- 
 tation of the amendments. 
 
A-106 
 
 (31) 
 
 Clawson, Marion, The Economics of National Forest Management (Washing- 
 ton, D.C. : Resources for the Future, June 1976). 
 
 Purpose : 
 
 To explore the current management of the national forests, attempting 
 to value their output in economic terms. Further, to consider all costs of 
 national forest management, emphasizing capital costs, the greater part of 
 national forest costs. 
 
 Regulatory Intent : 
 
 In 1871, Congress enacted the Forest Reserve Act to prevent the 
 relatively rapid harvesting of virgin forests in this country. Until 1897, 
 there was little or no management of these withdrawn lands and no legal 
 authority for use in any way. In 1897, Congress provided authority for the 
 use and management of national forests in legislation which is still basic 
 today. In 1911, the Weeks Act provided for the purchase of private lands 
 to establish and to extend national forests. In the 1930 's land was 
 purchased under the Submarginal Lands Program and the administration of 
 these lands has recently been placed in the hands of the U.S. Forest Service. 
 
 Methodology : 
 
 A comparison of the commercial forest land in national forests and 
 forest industry forests is made. Expenditures per acre ,are compared between 
 the forest industry forests and commercial forest which are national, to 
 determine whether more money is spent per acre to manage the national 
 forests. The following four major kinds of information are investigated. 
 
 1. The physical relation of output of every kind to different amounts 
 of each kind of input for major site classes on each national forest under 
 different forest management plans. 
 
 2 . The degree to which one level of use or activity for one output of 
 a forest interferes with or is compatible with a given level or use or 
 activity for another kind. 
 
 3 . Shadow prices for an economic evaluation of services and commodi- 
 ties not generally sold for cash for locations with significant differences 
 in value. 
 
 4. A capital account for national forests based upon reasonable 
 estimates of the present worth of the timberland and improvements, and upon 
 reasonable annual charges for the use of this capital. 
 
 Assumptions and Constraints : 
 
 Economics has, up until now, not been the basis for the allocation of 
 available appropriations among regions or forests or specific localities 
 within forests. Nor has it been the basis for decisions on forest function 
 or management practices. It is important to value the output of national 
 forests as the market would, and not at prices far below their present 
 market values. 
 
A-107 
 
 (31) 
 Conclusions : 
 
 A combined estimate of the components of value shows that the present 
 value of the national forests is approximately $42 billion. Cash income 
 from the national forests in FY 1973-74 was almost $500 million and over 
 94 percent of this was from timber sales . The national forests incur a 
 deficit of nearly $2 billion annually or about $9 per capita for the entire 
 population. This represents the interest charge on the investment for 
 national forest management. 
 
 The present timber inventory in national forests is economically 
 excessive. 
 
 These forests still contain so much old timber and very large volumes 
 per acre of valuable timber on which the annual growth is low, zero or even 
 negative. The capital tied up in timber stands in national forests is 
 excessive by about $12 billion. At a 5 percent interest rate, the excess 
 annual cost is $600 million and may be even higher at current interest rates, 
 That is equivalent to $3 per person for the entire United States. 
 
 The total per acre appropriations for national forests investment and 
 management in FY 1972 resulted in a figure of $6.53 per acre of commercial 
 forest. The average expenditure per acre for a large forest industry firm 
 averaged $5.06 per acre. These figures suggest that the Forest Service is 
 spending somewhat more per acre of commercial forest and forest management 
 than are the larger private firms. However, these figures are not wholly 
 comparable for the following reasons: 
 
 1. The national forest figures include expenditures on all land 
 within the National Forest System, whereas only half of the acreage of 
 national forests is commercial forest. 
 
 2. The national forests figures include more expenditures for 
 recreation, wildlife, watershed management and other non-timber purposes 
 than do the forest industry figures. 
 
 3. The national forests figures include considerable expenditures for 
 range management, whereas, the forest industry figures do not. 
 
 4. The national forests figures include more nearly all the costs for 
 fire protection, insect control and disease control than do the forest 
 industry figures. 
 
 5. The national forests figures include about $.50 per acre for 
 property acquisition, whereas, the forest industry figures include nothing 
 for this. 
 
 6. The national forests figures include considerable outlays 
 necessary for timber sales preparation including advertising. 
 
 7. In addition to the above private forest adjustments, an adjustment 
 must be made for the fact that the national forests figures do not include 
 any payments out of revenue to the counties, whereas, the forest industry 
 figures include a substantial amount for taxes. 
 
A-108 
 
 (31) 
 
 The analysis leads to the conclusion that the general level of timber 
 management expenditures on national forests is not too high and may well be 
 too low. The real criticisms of national forests management is that the 
 money is spent in the wrong places and for the wrong activities. 
 
 If the timber inventory were reduced to the economically rational 
 point, if timber management were banned on low production sites, and if 
 major economies were achieved by simplified management, savings of $700 to 
 $1,000 million might be achievable annually. At the same time, cash income 
 could be doubled or more. 
 
A-109 
 
 (32) 
 
 Smith, James S., "The Equal Credit Opportunity Act of 1974: A Cost- 
 Benefit Analysis," paper presented at the Annual Meeting of the American 
 Finance Association (September 1976) cited in Weidenbaum, Murray L. and 
 Robert DeFina, The Cost of Federal Regulation of Economic Activity , Reprint 
 No. 88 (Washington, D.C. : American Enterprise Institute, 1978). 
 
 Purpose : 
 
 To estimate the costs of compliance with the Equal Credit Opportunity 
 Act. 
 
 Methodology : 
 
 Smith identified and estimated seven nonrecurring costs and three main 
 recurring costs. The nonrecurring costs were legal fees, training costs, 
 costs of destroying obsolete forms, computer reprogramming , costs of addi- 
 tional storage space, printing and mailing of "Credit History for Married 
 Persons," and conversions of the creditors systems to use two names on their 
 files. The recurring costs were the costs on longer computer runs, costs 
 of buying additional credit reports, and costs to credit-reporting agencies 
 due to increased requirements for data processing and customers service . 
 
 Conclusions : 
 
 Smith estimated the total annual nonrecurring costs at $174.8 million 
 and the total annual recurring costs of $118 million. 
 
A-110 
 
 (33) 
 
 Kwoka, John E. Jr., "Pricing Under Federal Milk Market Regulation," 
 Economic Inquiry (July 1977) . 
 
 Purpose : 
 
 To examine the purpose served and quantitative impact of price-setting 
 procedures under federal marketing orders = 
 
 Regulatory Intent : 
 
 The Agricultural Marketing Agreement Act of 1937 provides for the 
 establishment of federal marketing orders. These orders set prices at 
 certain locations that must be paid for fresh milk and manufacturing milk. 
 There are now over 50 orders covering 80 percent of all fluid-eligible milk. 
 
 Methodology : 
 
 Estimates were made using a simultaneous equation system with the 
 following variables for 1960 and 1970: 
 
 Quantity of fluid-eligible milk supplied per producer by market area. 
 
 Derived demand by handlers for milk for fluid use at retail, per capita. 
 
 Retail price of fluid milk. 
 
 The model was used to estimate the prices and quantities of fluid and 
 manufacturing milk if there were no regulations. The efficiency loss in 
 the regulated milk market and redistribution of income were then estimated. 
 
 Constraints : 
 
 Estimates were derived from a sample of markets that accounted for 
 40.6 percent of all markets in 1960 and 51 percent in 1970. The estimates 
 were then increased by a factor to approximate all regulated milk sales. 
 
 Conclusion : 
 
 Redistribution of income from consumer to producer was estimated to be 
 $300.1 million in 1960, rising to $750.2 million in 1970. Efficiency or 
 deadweight loss was estimated to be $55.2 million in 1960, rising to $179 
 million in 1970. 
 
A-lll 
 
 (34) 
 
 MacAvoy, Paul W. , ed., Federal Milk Marketing Orders and Price Supports 
 (Washington, D.C. : American Enterprise Institute, 1977). 
 
 Purpose : 
 
 To estimate the total deadweight social loss and transfer payments of 
 Federal Milk Marketing Regulations . 
 
 Regulatory Intent : 
 
 The Agricultural Marketing Agreement Act of 1937 provides for the 
 establishment of federal marketing orders. These orders set prices at 
 certain locations that must be paid for fresh milk and manufacturing milk. 
 There are now over 50 orders covering 80 percent of all fluid-eligible milk. 
 
 Methodology : 
 
 This section of the book reports on two unpublished papers: 
 Richard Ippolito and Robert T. Mason ("The Social Costs of Federal Regula- 
 tion of Milk," January, 1976), and John E. Kwoka ("Pricing Under Federal 
 Milk Market Regulation: Theory, Objectives, and Impact," 1975). 
 
 Richard Ippolito and Robert T. Mason aggregated all federal order 
 markets into a model containing one model federal order market. 
 
 Kwoka estimated social costs in individual order markets and then 
 aggregated his estimates . 
 
 Details of methodology were not included in the MacAvoy book. 
 
 Constraints : 
 
 The model used by Ippolito and Mason aggregates individual federal 
 order markets into one federal order market, aggregates supply and demand 
 of milk on an annual basis, even though supply fluctuates through the year, 
 and aggregates grade A and grade B milk. They believe these simplifications 
 have a downward bias on the model. 
 
 Conclusions: 
 
 Ippolito and Mason estimate that in 1973 the total deadweight loss to 
 the economy ranges from $125-$245 million and total transfer payments equal 
 $250-$500 million. 
 
 Kwoka estimates the total deadweight loss for 1970 to be $202 million 
 and gross transfer payments of $805. 
 
A-112 
 
 (35) 
 
 Heien, Dale, "The Cost of the U.S. Dairy Price Support Program: 1949- 
 1974," The Review of Economics and Statistics , Vol. LIX, February 1977, No. 1. 
 
 Purpose : 
 
 The purpose of this study is to estimate, in addition to the direct costs 
 of the U.S. dairy price support program, the cost to consumers due to increased 
 prices of dairy products. 
 
 Regulatory Intent : 
 
 The Agricultural Act of 1949 provided for the support of income to dairy 
 farmers through the purchase of various dairy products . The purchases were 
 made by the Commodity Credit Corporation, and consisted of quantities of butter, 
 Cheddar cheese, and nonfat dry milk. The Act required the Secretary of Agri- 
 culture to support prices between 75 and 90 percent of parity. This require- 
 ment was in effect in the period from 1950 to 1973 when it was raised to 80 
 percent. In addition, Congress has also financed in part the National School 
 Lunch Program, the Special Milk Program, and more recently the Food Stamp 
 Program. 
 
 Methodology : 
 
 The methodology employed is to specify and estimate an econometric model 
 of the U.S. dairy sector. The model is then used to measure the impacts on 
 consumer prices over the period of 1949 to 1973 of the price support system and 
 federal order system. These retail price changes were then used as a cost-of- 
 living index to measure the costs to consumers of these programs. The model of 
 the U.S. dairy industry may be divided into three sectors\j retail demand equa- 
 tions, retail price formation relations, and farm output and price determination 
 relations. The model was estimated over the period 1950 to 1969. The years 
 1970 to 1974 were used for prediction interval tests to validate the model. 
 
 Assumptions : 
 
 One assumption made in the study is that the Consumer Price Index can be 
 used as a true cost-of-living index, enabling the computation of welfare lost 
 due to higher dairy prices in dollar terms. Another assumption made was that 
 in order to measure the impact of the Federal Milk Marketing Order System, the 
 premium or differential for fluid market milk was set equal to zero for each 
 year from 1949 to 1973. This is a somewhat extreme assumption since some small 
 differential would presumably remain in order to cover the costs of meeting the 
 more stringent sanitary conditions. 
 
 Constraints : 
 
 The study ignores factors such as administrative costs and the effects of 
 reconstituted milk on the market, etc. In addition, there is no attempt made 
 to estimate the costs to consumers of dairy import quotas . 
 
 Conclusions : 
 
 The direct costs estimated outside of this particular study of the CCC 
 Dairy Price Support Program has been $7,048 billion over the period 1949-1974. 
 This study shows that the additional loss to consumers over this period is 
 $3,405 billion so that the total cost of the program over the 26 years of its 
 existence is $10,453 billion or an average of $402 million per year. In mea- 
 suring the impact of the Federal Milk Marketing Order System, where the premium 
 for fluid market milk was set equal to zero, the resulting costs were $4,558 
 billion over the entire period, an average of $175 million per year. 
 
A-113 
 
 (36) 
 
 Boyer, Kenneth D., "Minimum Rate Regulation: Modal Split Sensitivities 
 and the Railroad Problem." The Journal of Political Economy ; Vol. 85, No. 3, 
 1977. 
 
 Purpose : 
 
 To test the hypothesis that the diversion of traffic from railroads to 
 motor carriers has not been the result of minimum rate regulation. 
 
 Regulatory Intent : 
 
 The traditional view of the role of ICC minimum rate regulation is that 
 it maintains that the traffic diversion to highway carriers from rails was 
 the result of cream skimming due to ICC enforced maintenace of value-of- 
 service pricing, and is based on the assumption that the service differential 
 is small relative to rates. 
 
 Methodology : 
 
 The traditional comparative cost approach to estimating the economic loss 
 due to traffic misallocation is overestimated by a factor of twenty. This 
 study attempts to estimate econometrically the price sensitivity of shippers 1 
 mode of transport selections and thus arrive at predictions of traffic shifts 
 resulting from deregulation in the most direct way. This study emphasizes 
 mode choice sensitivities in the context of a modal split form. A regression 
 model where some functional form of the combined annual rail and truckload 
 motor common carrier ton/miles of 1 of 17 commodities shipped between two 
 states is the dependent variable and is regressed on relative prices both in 
 ratio and difference form, miles, tons, and several dummy variables. From 
 these regressions the percentage of the total rail and road traffic that would 
 be shifted to rails if they reduced rates by 1 percent of truck rates is 
 determined. A calculation of the economic loss due to distorted mode choice 
 using a modal split curve is then undertaken. This methodology is somewhat 
 similar to the standard consumer surplus approach to this problem. 
 
 Assumptions and Constraints : 
 
 First, out-of-pocket costs are used to estimate marginal costs. However, 
 they are accounting constructs based on numerous assumptions on the extent to 
 which certain cost categories vary with traffic levels. Second, the analysis 
 assumes that rail rates could drop to as little as one quarter the 
 truck rates. A more plausible ratio may be higher. Third, there may be a 
 source of error in the estimate of current rates. Fourth, the analysis con- 
 siders only shifts of manufacturers between common motor carriers and rail- 
 roads. Nonmanuf acturers are excluded as well as private carriers, pipelines, 
 airlines and water carriers. Fifth, the data were collected in the 1960's and 
 have since been subjected to inflation, the decline of the northeastern rail- 
 roads, as well as a general increase in freight shipments over the last decade. 
 Sixth, the possibility of model misspecif ication exists. Finally, the calcu- 
 lations assume a fixed quantity of freight traffic. If the combined truck/ 
 rail tonnage is sensitive to price levels, there will be additional costs 
 resulting from distortions from traffic level decisions. There will also be 
 losses in terms of secondary distortions throughout the economy. 
 
 Conclusions : 
 
 The study concludes that the intermodal traffic misallocation costs to 
 the economy is $125 million per year. The author assumes that this is a 
 plausible upper bound for the true economic loss due to traffic misallocation. 
 
A-114 
 
 (37) 
 
 Goldfarb, Robert S. and John F. Morrall, III, "Cost Implications of 
 Changing Davis-Bacon Administration." Forthcoming in Public Policy . 
 
 Purpose : 
 
 To estimate the costs and savings to society of changing the Davis- 
 Bacon wage rates to be consistent with a more accurately determined local 
 prevailing wage. In effect this study estimates the economic loss due to 
 the inefficient determination of prevailing wage rates. 
 
 Regulatory Intent : 
 
 The Davis-Bacon Act, passed in 1931, requires contractors engaged in 
 federal government supported construction to pay their employees at rates 
 equal to or above levels as specified by the U.S. Department of Labor. The 
 wage rates set by the Department of Labor are supposed to represent local 
 prevailing wages. 
 
 Methodology : 
 
 The authors rely upon a newly available data base — a survey of union 
 and nonunion average wages and Davis-Bacon rates in 19 cities for five occu- 
 pations for September 1972 — to determine if the Davis-Bacon wage rates are 
 in some sense equivalent to the prevailing wage rates, i.e., average wages. 
 A determination of the percent by which union wages exceed average wages is 
 developed, since union wages are usually used as the prevailing wage in order 
 to determine Davis-Bacon rates. Given the total level of public construction 
 in 1972 and the percent of total costs attributable to labor compensation, an 
 estimate of the dollar savings for adjusting union wages back down to average 
 wages is calculated. 
 
 Assumptions and Constraints : 
 
 A special 1975 Bureau of Labor Statistics study provided the data for 
 this investigation. Most of the constraints on the data arise out of com- 
 paring wages from this special BLS study with Davis-Bacon rates obtained from 
 the Labor Department. The appropriateness of making the comparison is sub- 
 ject to the following problems: 
 
 1. The special survey includes mostly large cities where the degree of 
 unionization may differ from that of smaller cities. 
 
 2. The special survey does not include firms with fewer than eight 
 employees . 
 
 3. The comparisons are only for five specific occupations in commercial 
 and residential construction. 
 
 4. The survey counts as a nonunion wage, a wage paid to a nonunion 
 worker on a Davis-Bacon job. 
 
 5. The survey is for September 1972, when the Construction Industry 
 Stabilization Committee was in operation. 
 
 6. The BLS survey is for SMSA's, whereas the Davis-Bacon rates do not 
 necessarily encompass the entire SMSA. 
 
A-115 
 
 (37) 
 
 Another major category of problems involves the appropriateness of wage 
 differences as a proxy for real cost differences. One particular problem 
 has to do with the lag in the process of recording new wage settlements. 
 If there is a lag in the recording process, Davis-Bacon may typically be 
 below union rates and a long enough lag could bring Davis-Bacon rates below 
 average rates . 
 
 Conclusions : 
 
 Given the difference between union and average wages and the amount 
 of public construction in 1972 and labor compensation's proportion of those 
 total costs, the percentage savings translate into dollar savings of $222 
 million to $571 million for 1972. The estimates made in this study are 
 compared to those made in other study by Thieblot whose estimate of the costs 
 run from around $150 million to $1 billion. 
 
A-116 
 
 (38) 
 
 Friedlaender , Ann, "The Social Costs of Regulating the Railroads," 
 ( American Economic Review , May 1971) . 
 
 Purpose : 
 
 To measure the social costs arising from rail regulation of value-of- 
 service pricing and by the maintenance of excess capacity in the rail industry. 
 
 Methodology : 
 
 A short run and a long run cost function were estimated. The short run 
 cost function was a cross-section estimated for 2-year periods, 1957-1960 and 
 1961-1964, for 88 railroads. The long run cost function was estimated using 
 quarterly data for the period 1957-1964. From these cost functions short run 
 and long run elasticities were calculated. Full capacity output was then 
 calculated and the cost of lost output was estimated. 
 
 Constraints : 
 
 The estimation technique tends to overestimate the excess costs. 
 
 Conclusions : 
 
 The costs of excess capacity in 1969 were estimated to be between $2.4 
 and $3.8 billion. The deadweight costs' due to value-of-service pricing were 
 estimated to be $220 to $270 million in 1969. 
 
A-117 
 
 (39) 
 
 Grabowski, Henry G. , Drug Regulation and Innovations : Empirical 
 Evidence and Policy Options (Washington, D.C. : American Enterprise 
 Institute, 1976). 
 
 Purpose : 
 
 To ascertain the effects of Food and Drug Administration regulations 
 on the pharmaceutical industry. 
 
 Methodology : 
 
 Grabowski surveyed articles by Martin Bailey, Sam Peltzman, and 
 William Wardell ; and Henry Grabowski, John Vernon, and Lacy G. Thomas on 
 the effects of government regulation on the pharmaceutical industries 
 
 Conclusion : 
 
 Grabowski 's conclusion was that government regulation has a signifi- 
 cant negative effect on the rate of innovation. 
 
A-118 
 
 (40) 
 
 Smith, Robert S., "The Occupational Safety and Health Act," (Washington, 
 D.C- : American Enterprise Institute, 1976). 
 
 Purpose : 
 
 To evaluate the goals, the administration, and the impact of the 
 Occupational Safety and Health Act of 1970. 
 
 Methodology : 
 
 Benefit-cost studies are the tools used to determine whether the 
 increases in human welfare (the benefits) which arise from compliance with a 
 particular standard are larger than the human welfare foregone because 
 resources which could be used for other goods and services are devoted 
 instead to increased safety and health (the cost) . The study attempts to 
 answer the question whether the workers benefiting from increased safety 
 would be willing to pay for the program. 
 
 Constraints : 
 
 It is not always possible to estimate people's willingness to pay for 
 risk reduction and what evidence there is may be fragmentary or subject to 
 statistical biases. 
 
 Conclusions : 
 
 Based on this study's analysis, the author conjectures that workers 
 would not be willing to pay for increased protection. It should be stressed 
 that estimates of benefits must attempt to discover what the beneficiaries 
 themselves are actually willing to pay for the benefits, not what someone 
 thinks they should be willing to pay. If individuals with accurate informa- 
 tion about risks show little concern about them, and if we are willing to 
 let people decide important personal issues for themselves, then govern- 
 ment bureaucracies (like OSHA) are not justified in pronouncing workers 
 "irrational" and by inflating benefits forcing more safety upon them than 
 they would voluntarily choose . 
 
 
A-119 
 
 (41) 
 
 Comanor, William S. and Bridger M. Mitchell, "The Cost of Planning: 
 The FCC and Cable Television." 
 
 Purpose : 
 
 To determine the loss of efficiency because of the restricted demand 
 caused by government regulation. 
 
 Methodology : 
 
 The maximum resources available for regulatory purposes are the 
 revenues earned by the regulated firm which exceed their cost. The loss 
 of efficiency from regulation depends crucially on the extent to which 
 output is restricted by higher prices . The prices which can be set by a 
 regulated firm depend greatly on the price elasticity of demand. Much 
 depends on the appropriate value of the elasticity of demand. When demand 
 is highly inelastic, prices can be increased without severely limiting the 
 volume of output and therefore regulators have greater freedom to impose 
 additional financial burdens on the firms . 
 
 Constraints : 
 
 Estimates of benefits and cost depend critically on detailed infor- 
 mation on market prices and demands in the absence as well as in the 
 presence of ongoing regulatory activity. 
 
 Conclusions : 
 
 Comanor and Mitchell do not measure the actual benefits of regulation, 
 but they do state that they feel these benefits would be quite low. 
 Comanor and Mitchell estimate the loss to the economy from the higher 
 price of regulated cable T.V. at between $1 billion and $2 billion a year, 
 depending on the magnitude of demand elasticity. Cable television repre- 
 sents a minor part of the total FCC regulatory program and by no means 
 represents the total cost of the FCC. 
 
A-120 
 
 IMPACT OF SINGLE 
 
 REGULATIONS ON A 
 
 SPECIFIC GROUP OR 
 
 INDUSTRY 
 
A-121 
 
 (42) 
 
 Miernyk, William H. and Jolin T. Sears, Air Pollution and Regional 
 Economic Development in Input Output Analysis (Lexington, Mass.: 
 Lexington Books, 1974). 
 
 Purpose : 
 
 To estimate the costs of air pollution abatement from stationary coal 
 burning industrial plants in West Virginia. 
 
 Methodology : 
 
 Cost projections of pollution control were collected from polluting 
 industrial plants in West Virginia. These costs were supplemented from 
 data in the pollution control literature. Cost data were collected for 
 three alternative levels of pollution control: 
 
 1. Physical coal-cleaning 
 
 2. Physical cleaning with some Myers-TRW chemical coal-cleaning 
 
 3. Chemical coal-cleaning and sulfur oxide flue gas scrubbing 
 
 Conclusions : 
 
 The costs of air pollution control are given below. 
 
 Millions of Estimated 1975 Dollars 
 ALTERNATIVE 
 
 Total Capital Costs 
 Total Operating Costs 
 Change in Total Gross Output 
 
 $352 
 
 $439 
 
 $976 
 
 $ 55 
 
 $ 78 
 
 $152 
 
 $323 
 
 $413 
 
 $864 
 
A-122 
 
 (43) 
 
 Seskin, Eugene P., "Automobile Air Pollution Policy," Chapter III in 
 Portney, Paul R. , Editor, Current Issues in U.S. Environmental Policy , 
 (Baltimore: Johns Hopkins University Press, 1978). 
 
 Purpose : 
 
 Review the current status of mobile source pollution abatement, assess 
 the costs and benefits of the current situation and recommend alternative 
 methods for providing for environmental safety other than direct source 
 regulation. 
 
 Regulatory Intents : 
 
 Title II of the 1970 Amendments to the Clean Air Act, officially 
 labeled The National Emission Standards Act, detailed the timetable for 
 automobile exhaust emission standards. With the energy crisis in 1973-74, 
 the administrator of the EPA granted a delay in compliance. A new schedule 
 to be met by all automobiles by 1982 was enacted. 
 
 Assumptions : 
 
 Cost estimates were taken from The Cumulative Regulatory Effects on 
 the Cost of Automobile Transportation prepared by the Ad Hoc Committee of 
 the Office of Science and Technology, Washington, D.C., 1972. No further 
 details on assumptions or constraints to the particular estimating 
 procedure are available in this article. 
 
 Conclusions : 
 
 The cost estimates of automotive emissions control over the 1976 to 
 1985 decade totaled $95.1 billion for meeting the original standards 
 legislated in the 1970 Amendments. The annual costs after this period 
 were estimated to be $10.1 billion. In addition, a 1974 NAS study entitled 
 Air Quality and Automobile Emission Control, Vol. 4 The Cost and Benefits 
 of Automobile Emission Control, Report by the Coordinating Committee on 
 Air Quality Studies , National Academy of Sciences, National Academy of 
 Engineering (Washington, D.C.: Government Printing Office, 1974), also 
 reported certain costs of compliance based on best available data at that 
 time. Their estimates were in the range of $8 to $11 billion annually 
 through 1985. Less stringent standards reduced the costs significantly. 
 
A-123 
 
 (44) 
 
 Posner, Richard, "The Social Costs of Monopoly and Regulation," Journal 
 of Political Economy , Vol. 83, No. 4 (1975). 
 
 Purpose : 
 
 To develop a model and estimate social costs of monopoly-inducing 
 regulation in the United States . 
 
 Methodology : 
 
 A model to estimate the total social costs of monopoly was developed. 
 The social costs were estimated as a function of the price elasticity of 
 demand, the total sales revenue at the monopoly price and output and the 
 ratio of competitive price to the monopoly price. Estimates of monopoly 
 price increase and the elasticity of demand were obtained from current 
 literature of industry studies and from these calculations of the social 
 costs of monopoly were made . 
 
 Constraints ; 
 
 There may be some questions concerning the assumptions on which the 
 model is based. The data on price increases and elasticities of demand are 
 only crude estimates. 
 
 Conclusions : 
 
 The social costs of regulation were found to range from 14 to 31 percent 
 of industry sales for physicians' services, 13 to 24 percent for eyeglasses, 5 
 to 10 percent for milk, 19 to 30 percent for motor carriers, 20 to 32 percent 
 for oil, and 19 to 20 percent for airlines. Private monopoly may be less 
 (social) costly than public regulations. 
 
A-125 
 
 IV. 
 
 EXTENSIVE BIBLIOGRAPHY 
 
 ON REGULATORY 
 
 IMPACT STUDIES 
 
A-127 
 
 IMPACT OF ALL REGULATIONS 
 ON THE NATIONAL ECONOMY 
 
 Chilton, Kenneth W. , "The Impact of Federal Regulation on American Small 
 Business — Attachment to Testimony Prepared for the Committee on Small 
 Business of the U.S. House of Representatives," (March 8, 1978). 
 
 DeFina, Robert, Public and Private Expenditures for Federal Regulation of 
 Business (St. Louis, Mo. : Washington University Center for the Study of 
 American Business, Working Paper No. 22, November 1977). 
 
 DeFina, Robert and Murray L. Weidenbaum, The Taxpayer and Government 
 Regulation (St. Louis, Mo. : Washington University Center for the Study of 
 American Business, March 1978). 
 
 Joint Economic Committee, Subcommittee on Economic Growth and Stabiliza- 
 tion, U.S. Congress, The Cost of Government Regulation of Business (Wash- 
 ington, D.C.: JEC, April 1978). 
 
 Leone, Robert A., "The Real Costs of Regulation," Harvard Business Review 
 (November-December 1977). 
 
 MacAvoy, Paul W. , The Economic Effects of Regulation (Cambridge, Mass.: 
 Massachusetts Institute of Technology, 1965) . 
 
 McCraw, Thomas K. , "Regulation in America: A Review Article," Business 
 History Review (Summer 1975) . 
 
 Weidenbaum, Murray L. , "Business and Government: The Changing Relationship" 
 in Frank J. Bonello and Thomas R. Swartz, eds . , Alternative Directions in 
 Economic Policy (Notre Dame, Ind. : University of Notre Dame Press, 1978). 
 
 Weidenbaum, Murray L., "On Estimating Regulatory Costs," AEI Journal of 
 Government and Society (May/ June 1978) . 
 
 Weidenbaum, Murray L. , Government-Mandated Price Increases (Washington, 
 D.C. : American Enterprise Institute for Public Policy Research, 1975) . 
 
 Weidenbaum, Murray L., "The High Costs of Government Regulations," Business 
 Horizons (August 1975) . 
 
 Weidenbaum, Murray L. , "The New Wave of Government Regulation of Business," 
 Business and Society Review (Fall 1975). 
 
 Weidenbaum, Murray L. , "Reducing Inflationary Pressures by Reforming 
 Government Regulation," in William Fellner, ed., Contemporary Economic 
 Problems , (Washington, D.C. : American Enterprise Institute, 1976) . 
 
 Weidenbaum, Murray L. and Robert DeFina, The Cost of Federal Regulation 
 of Economic Activity , Reprint No. 88 (Washington, D.C. : American 
 Enterprise Institute, 1978). 
 
A-128 
 
 IMPACT OF MULTIPLE REGULATIONS 
 ON THE NATIONAL ECONOMY 
 
 Bailey, Elizabeth, "Innovation and Regulation," Journal of Public Economics 
 (August 1974) . 
 
 Baily, M.N. and J. Tobin, "Macroeconomic Effects of Selective Public 
 Employment and Wage Subsidies , " Brookings Papers on Economic Activity 
 (No. 2, 1977). 
 
 Bergsten, C. Fred, The Cost of Import Restrictions to American Consumers 
 (New York: American Importers' Association, 1972). 
 
 Berry, John, "Missing: $40 Billion," Forbes (March 6, 1978). 
 
 Briggs, Jean A. "The Price of Environmentalism — The Backlash Begins," 
 Forbes (June 15, 1977). 
 
 Brimmer, Andrew F. , "Impact Controls and Domestic Inflation," a Paper 
 Presented Before the Economics Seminar, University of Maryland, (November 11, 
 1970) . 
 
 Carter , Anne P . "Energy , Environment , and Economic Growth , " Bell Journal 
 of Economics and Management Science (Autumn 1974) . 
 
 Chase Econometric Associates, Inc., The Macroeconomic Impact of Federal 
 Pollution Control Programs (Washington, D.C.: Council on Environmental 
 Quality, January 1975) . 
 
 Council of Economic Advisers, Annual Report (Washington, D.C.: U.S. 
 Government Printing Office, 1976) . 
 
 Council of Economic Advisers, Annual Report (Washington, D.C.: U.S. 
 Government Printing Office, 1977) . 
 
 Council on Environmental Quality, The Economic Impact of Pollution Control - 
 A Summary of Recent Studies (Washington, D.C.: U.S. Government Printing 
 Office, 1972) . 
 
 Council on Environmental Quality and Environmental Protection Agency, 
 The Macroeconomic Impacts of Federal Pollution Control Programs : 1976 
 Assessment (Washington, D.C.: CEQ & EPA, 1976). 
 
 Crandall, Robert W. , "Federal Government Initiatives to Reduce the Price 
 Level," Brookings Papers on Economic Activity (No. 2, 1978). 
 
 Demsetz, Harold, "Why Regulate Utilities?" Journal of Law and Economics 
 (April 1973) . 
 
 Dorfman, Robert, "Incidence of the Benefits and Costs of Environmental 
 Programs," American Economic Review (Feb. 1977). 
 
A-129 
 
 Economic Report of the President , February 1975 (Washington, D.C.: U.S. 
 Government Printing Office, 1975). 
 
 Environmental Protection Agency, Economic Analysis of Effluent Guidelines 
 (Washington, D.C.: EPA 1974). 
 
 Environmental Protection Agency, The Economic Impact of the Federal 
 Environmental Program: A Report to the Subcommittee on Agriculture , 
 Environment and Consumer Protection of the Committee on Appropriations 
 of the House of Representatives . 
 
 Federal Trade Commission, Bureau of Economics, Staff Report on the United 
 States Steel Industry and its International Rivals : Trends and Factors 
 Determining International Competitiveness (Washington, D.C.: U.S. 
 Government Printing Office, 1977). 
 
 Fisher, Anthony C. and Frederick M. Peterson, "The Environment in Economics 
 A Survey," Journal of Economic Literature (March 1976). 
 
 Friedlaender , Ann F., The Dilemna of Freight Transport Regulation (Washing- 
 ton, D.C. : The Brookings Institution, 1969). 
 
 Harbeson, Robert W. "Toward Better Resource Allocation in Transport," 
 Journal of Law and Economics (October, 1969) . 
 
 Hendricks, Wallace, "Regulation and Labor Earnings," The Bell Journal 
 of Economics , (Autumn 1977) . 
 
 Hill, Gladwin, "Midpoint of 'Environmental Decade': Impact of National 
 Policy Act Assessed," Management Review (May 1975). 
 
 Hill, Gladwin, Lloyd A. Free, and Donald R. Lesh, Protecting The Environ- 
 ment: Progress, Prospects, and the Public View (Washington, D.C: Potomac 
 Associates, 1977). 
 
 Joint Economic Committee, United States Congress, The Economic Impact of 
 Environmental Regulations (Washington, D.C: U.S. Government Printing 
 Office, 1974) . 
 
 Jordan, W.A. , "Producer Protection, Prior Market Structure and the Effects 
 of Government Regulation," Journal of Law and Economics (April 1972). 
 
 Kangun, Norman and R. Charles Moyer, "The Failings of Regulation," MSU 
 Business Topics (Spring 1976) . 
 
 Klein, Burton H. , A Dynamic Theory of Regulation , Social Science Working 
 Paper number 199 (California Institute of Technology, Division of the 
 Humanities and Social Sciences, February 1978). 
 
 Kneese, Allen V., Economics and the Environment (New York: Penguin Books, 
 1977) . 
 
 Lave, Lester B. and Eugene P. Seskin, Air Pollution and Human Health 
 (Washington, D.C: Resources for the Future, 1977). 
 
A-130 
 
 Levin, Richard C, "Allocation in Surface Freight Transportation: Does 
 Rate Regulation Matter?" The Bell Journal of Economics (Spring 1978) . 
 
 MacAvoy, Paul W. , Crisis of the Regulatory Commissions (New York: Norton, 
 1970) . 
 
 MacAvoy, Paul W. , "The Effectiveness of the Federal Power Commission," 
 The Bell Journal of Economics and Management Science (1970) . 
 
 MacAvoy , Paul W . ed . , Federal Energy Administration Regulation: Report 
 of the Presidential Task Force (Washington, D.C. : American Enterprise 
 Institute, 1977) . 
 
 Moore, Thomas Gale, "Deregulating Surface Freight Transportation," in 
 Almarin Phillips, ed. , Promoting Competition in Regulated Markets (Wash- 
 ington, D.C. : The Brookings Institution, 1975) . 
 
 Moore, Thomas Gale, Freight Transportation Regulation : Surface Freight 
 and the ICC (Washington, D.C: American Enterprise Institute, 1972). 
 
 National Economic Research Associates, The Inflationary Impact of Federal 
 Pollution Abatement Legislation (New York: NERA, 1975) . 
 
 Noll, Roger G. , Reforming Regulation: An Evaluation of the Ash Council 
 Proposals (Washington, D.C: Brookings Institution, 1971). 
 
 Peck, Merton J. "Competitive Policy for Transportation?" in Almarin 
 Phillips, ed., Perspectives on Antitrust Policy (Princeton, N.J. : 
 Princeton University Press, 1965). 
 
 Peterson, H. Craig, "An Empirical Test of Regulatory Effects," The Bell 
 Journal of Economics (Spring 1975) . 
 
 Portney, Paul R. , ed. , U.S. Environmental Policy (Baltimore: The Johns 
 Hopkins University Press, 1978). 
 
 Posner, Richard A., "Taxation by Regulation," The Bell Journal of Economics 
 and Management Science (Spring 1971) . 
 
 Posner, Richard A., "Theories of Economic Regulation," The Bell Journal 
 of Economics and Management Science , (Autumn 1974) . 
 
 Seneca, Joseph J. and M. K. Taussig, Environmental Economics (Englewood 
 Cliffs, New Jersey: Prentice Hall, 1974). 
 
 Shepherd, William G. and Thomas G. Gies , eds., Regulation in Further 
 Perspective (Cambridge, Mass: Ballinger Publishing Co., 1974). 
 
 U.S. Senate, The Status of Environmental Economics . A Report Prepared 
 by the Environmental Policy Division of the Congressional Research Service 
 of the Library of Congress for the Committee on Public Works, U.S. Senate 
 (Washington, D.C: U.S. Government Printing Office, 1975). 
 
A-131 
 
 Von Furstenberg, George M. , "The Government and Capital Formation: A 
 Survey of Recent Issues," Journal of Economic Literature (Sept. 1977), 
 
 Walker, Michael J., "The Impact of Environmental Impact Statements," 
 Management Review (Jan. 1974) . 
 
 Weidenbaum, Murray L. , Business, Government, and the Public (Englewood 
 Cliffs, N.J.: Prentice-Hall, Inc., 1977). 
 
 Wharton Econometric Forecasting Associates, Inc., Wharton Short-Term 
 Econometric Model Post-Meeting Forecast Review (June 1, 1977). 
 
A-132 
 
 IMPACT OF MULTIPLE REGULATIONS 
 ON A SPECIFIC GROUP OR INDUSTRY 
 
 Arthur D. Little, Inc., Economic Impact of Environmental Regulations 
 on the United States Copper Industry (Washington, D.C. : EPA, January 
 1978) . 
 
 Arthur D. Little, Inc., Steel and the Environment; A Cost Impact 
 Analysis: Report to the American Iron and Steel Institut e (Arthur D. 
 Little, Inc., 1978). 
 
 Arthur D. Little, Inc., Steel and the Environment: A Cost Impact 
 Analysis: Report to the American Iron and Steel Institute (Arthur D. 
 Little, Inc. , 1975) . 
 
 Boo the, Joan Nor r is, Cleaning Up: The Cost of Refinery Pollution Control 
 (New York: Council on Economic Priorities, 1975). 
 
 Commission on Federal Paperwork, Final Summary Report (Washington, D.C: 
 U.S. Government Printing Office, October 3, 1977) . 
 
 Council on Environmental Quality, Coal Surface Mining and Reclamation : 
 An Evaluation and Economic Assessment of Alternatives (Washington, D.C: 
 1973) . 
 
 Council on Environmental Quality, Who Bears the Cost of Pollution Control? : 
 The Impact of the Distribution of Income of Financing Federally Required 
 Pollution Control (Washington, D.C: CEQ, 1973). (Prepared by Public 
 Interest Economic Center) . 
 
 Dorfman, Nancy S., "Who Will Pay for Pollution Control? — The Distribution 
 by Income of the Burden of the National Environmental Protection Program," 
 National Tax Journal (March 1975) . 
 
 Environmental Protection Agency, Economic Impact of EPA ' s Regulation on 
 the Petroleum Refining Industry (Washington, D.C: EPA 1976). 
 
 Environmental Protection Agency, Economic Impact of Pollution Control . 
 Regulations on Steel Plants in the Mahoning River Valley (Washington, D.C: 
 EPA, 1976) . 
 
 Fieleke, Norman S., "The Cost of Tariffs to Consumers," New England 
 Economic Review (Sept. -Oct., 1971). 
 
 Hittman, Associates, Inc., Prepared for the Appalachian Regional Commission, 
 Federal State and Local Regulatory Powers Affecting Energy Processing and 
 Related Development in the Appalachian Region (Washington, D.C. : Appala- 
 chian Regional Commission, February 1977) . 
 
 McNicol, David L. , "The Comparative Statics Properties of the Theory of the 
 Regulated Firm," The Bell Journal of Economics and Management Science 
 (Autumn 1973) . 
 
A-133 
 
 Meyer, Robert A., "Capital Structure and the Behavior of the Regulated 
 Firm Under Uncertainty," Southern Economic Journal (April 1976). 
 
 Sheppard, W. , et. al., Battelle Columbus Laboratories, Final Report on 
 The Economic Impact of Environmental Regulations on the Petroleum Industry 
 Phase II Study (Washington, D.C. : American Petroleum Institute, June 11, 
 1976) . 
 
 Spann, Robert M. "Rate of Return Regulation and Efficiency in Production: 
 An Empirical Test of the Averch-Johnson Thesis," The Bell Journal of 
 Economics and Management Science (Spring 1974) . 
 
 Temple, Barker and Sloan, Inc., Economic and Financial Impacts of Federal 
 Air and Water Pollution Controls on the Electric Utility Industry, Execu- 
 tive Summary (Washington, D.C: EPA, May 1976). 
 
 Thompson, Russell G. , James A. Calloway, and Lillian A. Nawalanic , The 
 Cost of Electricity: Cheap Power vs. a Clean Environment (Houston, Texas 
 Gulf Publishing Company, 1977) . 
 
 Tuccillo, John, "Taxation by Regulation: The Case of Financial Interme- 
 diaries," The Bell Journal of Economics (Autumn 1977). 
 
 URS Research Company, The Economic Impacts on the American Paper Industry 
 of Pollution Control Costs (San Mateo, Cal : URS, 1975). 
 
 Van Alstyne, Carol and Sharon Coldren, The Costs of Implementing Federally 
 Mandated Social Programs at Colleges and Universities (Washington, D.C. : 
 American Council on Education, June 1976) . 
 
 Weidenbaum, Murray L., "Government Regulation and the Cost of Housing," 
 Urban Land , (Feb. 1978) . 
 
 White, Lawrence J., "Quality Variation When Prices are Regulated," The 
 Bell Journal of Economics and Management Science (Autumn 1972) . 
 
A-134 
 
 IMPACT OF A SINGLE REGULATION 
 ON THE NATIONAL ECONOMY 
 
 Arpan, Jeffrey S., "Regulation of Foreign Direct Investment in the United 
 States: Quo Vasis, Vuo Vadit?" Journal of Contemporary Business (Autumn 
 1977) . 
 
 Besen, S. M. et. al . , "Economic Policy Research on Cable Television: 
 
 Assessing the Costs and Benefits of Cable Deregulation," in Paul W. MacAvoy, 
 
 ed. , Deregulation of Cable Television (Washington, D.C. : American Enter- 
 prise Institute, 1977). 
 
 Boyer, Kenneth D. , "Minimum Rate Regulation, Modal Split Sensitivities, 
 and the Railroad Problem," Journal of Political Economy (June 1977). 
 
 Breyer, Stephen G. , and Paul W. MacAvoy, Energy Regulation by the Federal 
 Power Commission (Washington, D.C: Brookings Institution, 1974). 
 
 Brooke, Paul, "Why Do We Pay So Much for Prescription Drugs?" Business 
 and Society Review (Spring 1975) . 
 
 Buxton, Boyd M. and Jerome W. Hammond, "Social Cost of Alternative Dairy 
 Price Support Levels," American Journal of Agricultural Economics (May 
 1974). 
 
 CAB Special Staff, CAB Regulatory Reform: Report of the CAB Special 
 Staff (Washington, D.C: U.S. Government Printing Office, 1975). 
 
 Campbell, Rita Ricardo , Food Safety Regulation: A Study of the Use and 
 Limitations of Cost-Benefit Analysis (Washington, D.C: American Enter- 
 prise Institute, 1974). 
 
 Clawson, Marion, Economics of National Forest Management (Baltimore, Md. : 
 Johns Hopkins University Press, 1976). 
 
 Comanor, W. and B. Mitchell, "The Costs of Planning: The FCC and Cable 
 Television," Journal of Law and Economics (April 1972). 
 
 Comptroller General of the United States, Need to Improve Benefit-Cost 
 Analyses in Setting Motor Vehicle Safety Standards , B-164497 (3) (Washington, 
 D.C: U.S. General Accounting Office, 1974). 
 
 Davis, Karen, National Health Insurance: Benefits, Costs, and Consequences 
 (Washington, D.C: Brookings Institution, 1975). 
 
 Douglas, George W. and James C Miller, Economic Regulation of Domestic 
 
 Air Transport: Theory and Policy (Washington, D.C: Brookings Institution, 
 
 1974) . 
 
 Environmental Protection Agency, The Cost of Clean Air (Washington, D.C: 
 EPA 1973) . 
 
A-135 
 
 Environmental Protection Agency, The Cost of Clean Water (Washington, D.C. : 
 EPA 1971) . 
 
 Environmental Protection Agency, The Cost of Clean Water and Its Economic 
 Impact (Washington, D.C: EPA, 1969). 
 
 Environmental Protection Agency, Economic Evaluation of the Promulgated 
 Interim Drinking Water Regulations (Washington, D.C: EPA 1975). 
 
 Environmental Protection Agency, Economic Evaluation of the Proposed In- 
 terim Primary Drinking Water Regulation (Washington, D.C: EPA 1975). 
 
 Environmental Protection Agency, Economics of Clean Water (Washington, D.C: 
 U.S. Government Printing Office, 1972). 
 
 Environmental Protection Agency, The Economics of Clean Water - 1973 
 (Washington, D.C: EPA 1973). 
 
 Farmer, Richard N. "The Case for Unregulated Truck Transportation," 
 Journal of Farm Economics (May 1964) . 
 
 Friedlaender, Ann, "The Social Costs of Regulating the Railroads," American 
 Economic Review (May 1971) . 
 
 Friend, Irwin, "Economic Foundations of Stock Market Regulation," Journal 
 of Contemporary Business (Winter 1975) . 
 
 Goldfarb, Robert S. and John F. Morrall , III, "Cost Implications of Changing 
 Davis-Bacon Administration," forthcoming in Public Policy 
 
 Gould , John P . , Davis-Bacon Act: The Economics of Prevailing Wage Laws , 
 (Washington, D.C: American Enterprise Institute, 1971). 
 
 Grabowski, Henry G. Drug Regulation and Innovation: Empirical Evidence 
 and Policy Options (Washington, D.C: American Enterprise Institute, 1976). 
 
 Grabowski, Henry C, John M. Vernon, and Lacy G. Thomas, "The Effects of 
 Regulatory Policy on the Incentives to Innovate : an International Compara- 
 tive Analysis," in Samuel A. Mitchell and Emery A. Link, eds., Impact of 
 Public Policy on Drug Innovation and Pricing (Washington, D.C. : American 
 University, 1976) . 
 
 Hanke, Steve H. and Ivars Gutmanis , "Estimates of Industrial Waterborne 
 Residuals Control Costs: A Review of Concepts, Methodology, and Empirical 
 Results," in Peskin, Henry M. and Eugene P. Seskin, Cost Benefit Analysis 
 and Water Pollution Policy (Washington, D.C: The Urban Institute, 1975). 
 
 Heien, Dale, "The Cost of the U.S. Dairy Price Support Program: 1949-1974," 
 Review of Economics and Statistics (February 1977) . 
 
 Herman, Stewart W. , The Health Costs of Air Pollution: A Survey of Studies 
 Published 1967-1977 (New York: American Lung Association, December 1977). 
 
A-136 
 
 "The High Price of Job Safety," Business Week (May 26, 1973). 
 
 Ippolito, Richard and Robert Mason, "The Social Cost of Federal Regulation 
 of Milk," unpublished paper cited in Paul MacAvoy, Federal Milk Marketing 
 Orders and Price Supports (Washington, D.C.: American Enterprise Insti- 
 tute, 1977). 
 
 Jordan, W. A., Airline Regulation in America (Baltimore, Md. , Johns Hopkins 
 University Press, 1970) . 
 
 Keeler, Theodore, "Airline Regulations and Market Performance," The Bell 
 Journal of Economics and Management Science (Autumn 1972) . 
 
 Kelman, Steven, "Regulation by the Numbers — A Report on the Consumer 
 Product Safety Commission," The Public Interest (Summer 1974). 
 
 Kessel, Reuben, "Economic Effects of Federal Regulation of Milk Markets," 
 Journal of Law and Economics , (October 1967) . 
 
 Kwoka, John Jr., "Pricing Under Federal Milk Market Regulation," Economic 
 Inquiry (July 1977) . 
 
 LaMond, Annette M. "An Evaluation of Intrastate Airline Regulation in 
 California," The Bell Journal of Economics and Management Science (Autumn 
 1976). 
 
 Lave, L. , and W. Weber, "A Benefit-Cost Analysis of Auto Safety Features," 
 Applied Economics (1970) . 
 
 MacAvoy, Paul W. , Federal Milk Marketing Orders and Price Supports (Wash- 
 ington, D.C.: American Enterprise Institute, 1977). 
 
 MacAvoy, Paul W. and John W. Snow, eds., Railroad Revitalization and 
 Regulatory Reform (Washington, D.C. : American Enterprise Institute, 1977). 
 
 Mintz, Use, U.S. Import Quotas: Costs and Consequences (Washington, D.C: 
 American Enterprise Institute, 1973) . 
 
 National Commission on Water Quality, Staff Report to the National Commission 
 on Water Quality (Washington, D.C: U.S. Government Printing Office, April 
 1976) . 
 
 Nay, Joe N. , John W. Scanlon, and Joseph S. Wholey, Benefits and Costs of 
 Manpower Training Programs : A Synthesis With Reservations and Recommenda- 
 tions , Reprinted from the Joint Economic Committee, Benefit-Cost Analysis 
 of Federal Programs , 92nd Congress, 2nd Session, January 1973 (Washington, 
 D.C: The Urban Institute, March 1973). 
 
 Noll, Roger C, Merton J. Peck, and John J. McGowan, Economic Aspects of 
 Television Regulation (Washington, D.C: Brookings Institution, 1973). 
 
 Oi, Walter Y. , "The Economics of Product Safety," The Bell Journal of 
 Economics and Management Science (Spring 1973) . 
 
A-137 
 
 Paul, Robert D. and Martin E. Segal Company, "The Impact of Pension Reform 
 on American Business," Sloan Management Review (Fall 1976). 
 
 Peltzman, Sam, "The Effects of Automobile Safety Regulation," Journal of 
 Political Economy (August 1975) . 
 
 Peltzman, Sam, "An Evaluation of Consumer Protection Legislation: The 
 
 1962 Drug Amendments," Journal of Political Economy , (September-October 1973) 
 
 Peltzman, Sam, Regulation of Pharmaceutical Innovation (Washington, D.C.: 
 American Enterprise Institute, 1974). 
 
 Peskin, Henry M. and Eugene P. Seskin, eds., Cost Benefit Analysis and 
 Water Pollution Policy (Washington, D.C. : The Urban Institute, 1975). 
 
 Ragan, James F. Minimum Wages and the Youth Labor Market , publication 
 No. 14 (St. Louis, Mo.: Center for the Study of American Business, Wash- 
 ington University, August 1977) . 
 
 Ruppenthal, Karl M. , "Some Economic Aspects of the Barge Line Mixing Rule," 
 Transportation Journal (Spring 1970) . 
 
 Smith, James S., "The Equal Credit Opportunity Act of 1974: A Cost-Benefit 
 Analysis," paper presented at the Annual Meeting of the American Finance 
 Association (September 1976) . 
 
 Smith, Robert S., The Occupational Safety and Health Act (Washington, D.C: 
 American Enterprise Institute, 1976) . 
 
 Thieblot, A. J. , The Davis-Bacon Act , Labor Relations and Policy Series 
 Report No. 10 (Philadelphia: University of Pennsylvania, 1975). 
 
 U.S. Senate, Committee on Commerce, Motor Vehicle Safety Oversight (Wash- 
 ington, D.C: U.S. Government Printing Office, 1974). 
 
 Weaver, Paul H. , "Noise Regulation Strikes a Sour Note," Fortune (March 1976). 
 
 Weston, J. Fred, "Economic Aspects of Consumer Product Safety," in George 
 Steiner, ed., Issues in Business and Society (New York: Random House, 1972). 
 
 Yale Law Journal, "Is Regulation Necessary? California Air Transportation 
 and National Regulatory Policy," Yale Law Journal (July 1965). 
 
A-138 
 
 IMPACT OF A SINGLE REGULATION 
 ON A SPECIFIC GROUP OR INDUSTRY 
 
 Caves, R. E. , Air Transport and Its Regulators (Cambridge, Mass.: Harvard 
 University Press, 1962). 
 
 DeVany, Arthur S., "The Effect of Price and Entry Regulation on Airline 
 Output, Capacity and Efficiency," The Bell Journal of Economics and 
 Management Science (Spring 1975) . 
 
 Eads, George C, "Competition in the Domestic Trunk Airline Industry: 
 Too Much or Too Little," in Almarin Phillips ed., Competition and 
 Regulation (Washington, D.C. : Brookings Institution, 1974). 
 
 Grabowski, Henry G. and John M. Vernon, "Structural Effects of Regulation 
 in the Drug Industry," in Robert Mason and P. David Quails, eds., Essays 
 in Industrial Organization in Honor of Joe Bain (Cambridge , Mass . : Ballinger 
 1976) . 
 
 Miernyk, William H. and J. T. Sears, Air Pollution Abatement and Regional 
 Economic Development in Input Output Analysis , (Lexington, Mass.: Lexington 
 Books, 1974) . 
 
 Muskin, Jerold B. and John A. Sorrentino, Jr. , "Externalities in a Regulated 
 Industry: The Aircraft Noise Problem," The American Economic Review 
 (September 1977) . 
 
 Pope, Claude E. , Mortgage Bankers Association, "Regulation on FHA's Un- 
 subsidized Housing Programs , " Statement before the Task Force on Tax 
 Expenditures, Government Organization and Regulation of the Committee on 
 the Budget, U.S. House of Representatives (Washington, D.C: MBA, May 20, 1977) 
 
 Posner, Richard, "The Social Costs of Monopoly and Regulation," Journal of 
 Political Economy , Vol. 83, No. 4 (1975). 
 
 Seskin, Eugene P., "Automobile Air Pollution Policy," in Portney, Paul R. , 
 ed. , Current Issues in U.S. Environmental Policy (Baltimore, Md. : Johns 
 Hopkins University Press, 1978). 
 
 Thompson, Russell G. , James A. Calloway, and Lillian A. Nawalanic , eds., 
 The cost of Clean Water: in Ammonia, Chlor-Alkali, and Ethylene Production 
 (Houston, Texas: Gulf Publishing Company, 1976). 
 
A-139 
 
 V. 
 
 DATA SOURCES 
 
 ON THE COSTS OF 
 
 GOVERNMENT REGULATION 
 
A-141 
 
 SOURCES OF DATA 
 
 This section represents a survey of the major sources of economic data 
 on the effects of government regulation. Publications from the Bureau of 
 the Census, Department of Commerce, Bureau of Labor Statistics and others 
 are included. A fairly detailed search of publications by agencies such es 
 the Environmental Protection Agency, the Food and Drug Administration, the 
 Department of Transportation, etc., that promulgate environmental regulations, 
 has been undertaken. Personal and telephone interviews were also carried out 
 with experts in the field of pollution regulations, abatement costs, and 
 compliance to determine the extent of data available. 
 
 The main findings of this effort are that there is a general paucity of 
 data on the costs of pollution abatement. In most cases, government agencies 
 do not collect and publish data on the cost of compliance on an ongoing basis. 
 Industries that are to be regulated submit their estimates of costs and com- 
 bined with government cost estimates provide the information necessary to 
 prepare Environmental Impact Statements. These estimates are generally 
 not collected systematically, nor are they always presented in the regulating 
 agencies' reports. 
 
 It is the intent of this section, therefore, to cover the more general 
 sources of costs of pollution abatement, to provide their listings and 
 descriptions. We do not list the individual Environmental Impact Statements 
 that provide a source of estimates of some costs due to pollution regulations. 
 
A-142 
 
 ANNOTATIONS 
 
 1 . American Petroleum Institute 
 
 Pollution control expenditures for the petroleum industry 
 in Environmental Expenditure of the United States Petroleum 
 Industry 1967-1976 . 
 
 (Annual series) 
 
 Data: Total pollution control expenditures on air, water, and land, 
 1967-1976. 
 
 Maintenance expenditure on air, water, and land, 1967-1976. 
 
 Research and development expenditure on air, water, and 
 land, 1967-1976. 
 
 2. Bureau of Economic Analysis 
 
 Pollution abatement and control expenditure in Survey 6f Current 
 Business 
 
 (Annual series in February issues) 
 
 Data: Private and public expenditures for pollution abatement and 
 control. 
 
 Private and public expenditures for air and water pollution 
 abatement. 
 
 Federal grants for pollution abatement and control. 
 
 New plant and equipment expenditures for pollution abatement in Survey 
 of Current Business . 
 
 (Annual series in July issues through 1976, June issues thereafter) 
 
 Data: New plant and equipment expenditures for abatement of air, 
 water, and solid waste pollutions. 
 
 Bureau of the Census 
 
 Federal, State, and local government expenditures for pollution abate- 
 ment and prevention in Environmental Quality Control, State and Local 
 Government Special Studies No. 86, Government Finances: Fiscal Year 
 1975-1976. 
 
A-143 
 
 Data: Governmental expenditures for selected environmental quality 
 control activities, 1975-1976. 
 
 State governmental expenditures for water, land, and air 
 quality activities, 1974-1976. 
 
 Local government expenditures for water, land, and air quality 
 control activities, 1973-1976. 
 
 Selected large local government expenditures for water 
 purification, 1975-1976. 
 
 Pollution abatement expenditures in current industrial reports, Series: 
 MA- 200. 
 
 (Annual series) 
 
 Data: Manufactures pollution abatement capital expenditures by SIC. 
 
 Manufactures pollution abatement operating cost by SIC. 
 
 Selected Industrial Air Pollution Control Equipment in Current Indus- 
 trial Reports, Series: MA- 35 J 
 
 (Annual series) 
 
 Data: Value of shipments of selected industrial air pollution control 
 equipment. 
 
 New orders, shipments, and backlog of orders for selected indus- 
 trial air pollution control equipment. 
 
 Council on Environmental Quality 
 
 Pollution abatement expenditures in Environmental Quality-The Annual 
 Report of the Council on Environmental Quality . 
 
 Years Available: Annual since 1970. 
 
 Data: Estimated incremental pollution abatement expenditures. Estimated 
 cost and fuel economy impacts of alternative emissions control 
 requirements . 
 
 Estimated direct employment in pollution control activities. 
 
 Estimated total pollution expenditures. 
 
A-144 
 
 Environmental Protection Agency 
 
 Air and water pollution control expenditures in Cost of Air and Water 
 Pollution Control 1975-1985 (February 1976) . 
 
 Data: Projected investment over 1976-1985 for air and water pollution 
 control. 
 
 Total cost of air and water pollution control, 1976-1985. 
 
 Ranking of impacted sector by total abatement expenditures as 
 percentage of investment and output, 1976-1985. 
 
 Accumulated estimated air pollution expenditures, 1971-1985. 
 
 Government spending for air pollution control. 
 
 Industrial air pollution control expenditures. 
 
 Water pollution control expenditures in Cost of Clean Water, Vol. II: 
 Cost Effectiveness and Clean Water (March 1971) 
 
 Data: Industrial investment in air and water pollution control, 
 1969-1970. 
 
 Estimated investment for waste treatment works, 1962-1968. 
 
 Effective rate of recapitalizations, 1962-1968. 
 
 Relative growth of population and sewer service 1962-1968. 
 
 Distribution of waste treatment investment, 1962-1968. 
 
 Water pollution control expenditures in Industry Expenditures for Water 
 Pollution Abatement from the Conference Board by Leonard Lund. 
 
 Data: Capital expenditure cost data. 
 
 Overall expenditures for operations and maintenance. 
 
 Public sewer use data. 
 
 Wastewater volume and effluent data. 
 
 6. U.S. Department of the Interior-Federal Water Pollution Control 
 Adminis tration 
 
A-145 
 
 Water pollution control expenditure in The Cost of Clean Water and Its 
 Economic Impact (4 Vol.), 1969. 
 
 (Intent was to update annually) 
 
 Data: Vol. I - cost estimates of new plant and equipment for selected 
 industries to meet water pollution standards. 
 
 Vol. II - new data on costs of municipal water pollution control. 
 
 Vol. Ill - local financing of wastewater treatment systems. 
 
 Vol. IV - five-year projection of estimated costs of controlling 
 pollution in the Organic Chemistry Industry. 
 
 7. McGraw-Hill 
 
 Pollution control expenditures in the Annual McGraw-Hill Survey of 
 Pollution Control Expenditures . 
 
 Years Available: Annual since 1968. 
 
 Data: Industry expenditure for pollution control. 
 
 Investment for air and water pollution controls. 
 
 Total expenditure for air and water pollution control. 
 
 Total pollution control expenditure as percent of capital 
 spending. 
 
 Total R&D pollution control expenditures. 
 
 Capacity shutdown due to environmental and safety regulations. 
 
 Investment in employee safety and health in the Annual McGraw-Hill 
 Survey Investment in Employee Safety and Health 
 
 Years Available: Annual since 197 3. 
 
 Data: Investment in employee safety and health. 
 
 Employee safety and health investments as a percent of capital 
 spending. 
 
 Capacity shutdowns due to environmental and safety regulations. 
 
A-146 
 
 BIBLIOGRAPHY OF DATA SOURCES 
 
 American Petroleum Institute, Environmental Expenditures of the United 
 States Petroleum Industry 1967-1976 (Washington, D.C. : API, 1977). 
 
 Bureau of the Census , Environmental Quality Control, Government Finances : 
 Fiscal Year 1975-76 , State and Local Government Special Studies No. 86 
 (Washington, D.C: U.S. Government Printing Office, March 1978). 
 
 Bureau of the Census , Pollution Abatement Costs and Expenditures 1973 , 
 Current Industrial Reports, Series: MA-200 (Washington, D.C: U.S. Govern- 
 ment Printing Office, March 1976). 
 
 Bureau of the Census , Selected Industrial Air Pollution Control Equipment , 
 Current Industrial Reports, Series: MA-35J (Washington, D.C: U.S. Govern- 
 ment Printing Office, 1974). 
 
 Council on Environmental Quality, Environmental Quality-The Eighth Annual 
 Report of the Council on Environmental Quality (Washington, D.C: U.S. 
 Government Printing Office, 1977). 
 
 Cremeans, John E., "Capital Expenditures by Business for Air and Water 
 Pollution Abatement, 1973 and Planned 1974," Survey of Current Business 
 (July 1974) . 
 
 Cremeans, John E., and Frank W. Segel, "National Expenditures for Pollution 
 Abatement and Control, 1972," Survey of Current Business (February 1975). 
 
 Cremeans, John E., Frank W. Segel, and Gary L. Rutledge , "Capital Expendi- 
 tures by Business for Air, Water, and Solid Waste Pollution Abatement, 
 1974 and Planned 1975," Survey of Current Business (July 1975). 
 
 Environmental Protection Agency, Cost of Air and Water Pollution Control 
 1975-1985 (Washington, D.C: U.S. Government Printing Office, February 
 1976) . 
 
 Environmental Protection Agency, Cost of Clean Water, Vol. II: Cost 
 Effectiveness and Clean Water (Washington, D.C: U.S. Government Printing 
 Office, March 1971) . 
 
 Environmental Protection Agency, Industry Expenditures for Water Pollution 
 Abatement (Washington, D.C: U.S. Government Printing Office, 1977). 
 
 4th Annual McGraw-Hill Survey: Investment in Employee Safety and Health 
 (New York: McGraw-Hill, 1976). 
 
 10th Annual McGraw-Hill Survey of Pollution Control Expenditures (New York: 
 McGraw-Hill, 1977) . 
 
 Segel, Frank W. and Frederick J. Dreiling, "Pollution Abatement and Control 
 Expenditures, 1972-76," Survey of Current Business (February 1978). 
 
A-147 
 
 Segel, Frank W. and Betsy C. Dunlap, "Capital Expenditures by Business 
 for Pollution Abatement 1976 and Planned 1977," Survey of Current Business 
 (June 1977) . 
 
 Segel, Frank W. and Gary L. Rutledge "Capital Expenditures by Business 
 
 for Air, Water, and Solid Waste Pollution Abatement, 1975 and Planned 1976," 
 
 Survey of Current Business (July 1976) . 
 
 Segel, Frank W. and Gary L. Rutledge, "National Expenditures for Pollution 
 Abatement and Control, 1973," Survey of Current Business (February 1976). 
 
 Segel, Frank W. , Gary L. Rutledge, and Frederick J. Dreiling, "Pollution 
 Abatement and Control Expenditures , 1974," Survey of Current Business 
 (February 1977) . 
 
 U.S. Department of the Interior — Federal Water Pollution Control Adminis- 
 tration, The Cost of Clean Water and Its Economic Impact (Washington, D.C. : 
 U.S. Government Printing Office, 1969). 
 
A-149 
 
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THE REGULATORY BUDGET: 
 CONCEPTS AND INFORMATION REQUIREMENTS 
 
 Prepared for: 
 
 U.S. DEPARTMENT OF COMMERCE 
 
 The Assistant Secretary for Policy 
 Office of Regulatory Economics and Policy 
 
 Prepared by: 
 
 Dr. Richard Fullenbaum; Dr. Joseph E. Kasputys 
 DATA RESOURCES, INC. 
 
 1750 K Street, N.W. 
 Washington, D.C. 20006 
 
 Purchase Order No. 8-36341 
 
 August 1978 
 
B-3 
 
 THE REGULATORY BUDGET: 
 CONCEPTS AND INFORMATION REQUIREMENTS 
 
 Summary 
 
 A regulatory budget holds promise as a system of management, a versatile 
 tool that can be used within the executive branch of the federal govern- 
 ment to review regulations and their impact upon public and private 
 resource allocation decisions, and a system to improve the efficiency of 
 the regulatory process itself. 
 
 A regulatory budget would contain at least two elements: a regulatory 
 review process and an annual budget review process responsive to executive 
 and legislative branch decisions. Ideally, a regulatory review process 
 could be integrated into the annual budget process . The purpose of a 
 regulatory budget would be to examine federal regulations within the 
 "limits" of and private sector resources, enabling the decision- 
 making process to become more sensitive to the total "costs" of regulation. 
 These are government costs associated with regulation, including those 
 imposed by one agency upon another, as well as private sector compliance 
 costs. Such a system would impose the budget discipline*, featuring the 
 pressures of finite resources and the interactive process within which 
 priorities are reshaped, on a regulatory management system. 
 
 I. Central Oversight . Information on the costs, as well as measures of 
 the benefits would need to be formally and uniformly developed across 
 agencies. A central office within the executive branch would be 
 charged with that responsibility. A centrally directed evaluation 
 system seems preferable to an agency self-review process, since within 
 regulatory agencies the most compelling force that affects decision- 
 making is the constituent pressures that are continually applied in 
 the rulemaking process. As matters stand, a regulatory agency may not 
 weigh as heavily the unconcentrated general public concerns as the 
 more vociferous concentrated interests that are closely following, and 
 more knowledgeable of, the effects of a given regulation. 
 
 The important characteristic of a central oversight agency is the 
 degree of its involvement in the review process. The primary function 
 of the central agency would be to establish constraints or "targets" 
 within which the regulating agency would operate. There are three 
 broad possibilities for organizational structuring of the review 
 process: 
 
 1. A process involving a central agency (let us call it an Office 
 of Management and Budget/White House Group) that "oversees" the 
 current regulatory process and becomes involved only as it sees 
 fit and periodically; 
 
B-4 
 
 2 . An evaluation process that includes an Office of Management 
 and Budget/White House type of organization and the involvement 
 of the uppermost levels of a proposing agency or department; 
 
 3. A review system similar to "2," except that the specific pro- 
 gram (or line agency within the department) would be formally 
 included in the process. 
 
 The decision levers at the disposal of the review unit may include 
 authority for changes or for setting guidelines and boundaries within 
 which the regulatory process functions. In general, it is likely that 
 the greater overview of the system that this group maintains and the 
 less it becomes involved in evaluating individual regulations the more 
 effective the review process. 
 
 The responsibilities of the regulatory group could include assessments 
 of the impact of existing regulations on a sector-by-sector basis, and, 
 if applicable, analysis of the effects of proposed new federal regula- 
 tions on macroeconomic policy parameters. The review group would 
 establish annual guidelines, at a minimum providing ceilings on regu- 
 latory impacts to constrain the budget process. 
 
 II. Budget Procedure . Inclusion of the regulatory budget in the tradi- 
 tional budget requires careful staging so that its elements can be 
 incorporated into the executive formulation and congressional appro- 
 priations process. The regulatory review group should provide the 
 same kind of guidance to the President in this process as its counter- 
 part provides with respect to fiscal policy boundaries. One possible 
 scenario is the following: At some early stage in the formulation 
 process (spring/summer) , a Presidentially-determined aggregate limit on 
 total government regulatory costs and total private sector costs attri- 
 butable to federal government regulation would be imposed. In June, 
 the regulating agencies are given an "agency ceiling" which they would 
 use as guidance for submission of budget requirements to the Office of 
 Management and Budget in the fall. Their submissions would contain the 
 following details: 
 
 • Direct government cost ceilings — budget authority or obligations— 
 for existing regulations. 
 
 • Direct cost ceilings (budget authority or obligations) for new 
 regulations. 
 
 • Private sector regulatory authority for existing regulations. 
 
 • Private sector regulatory authority for new regulations. 
 
 All four categories are contained in the budget that the President 
 ultimately submits to Congress. "Regulatory authority" is akin to 
 budget authority, but refers to an authority to impose costs upon the 
 private sector. Like budget authority, it must pass through the 
 appropriations process. 
 
B-5 
 
 What occurs in subsequent (summer) months is a mirror image of the 
 regular budget cycle with one major exception. The agency must 
 prepare regulatory authority estimates based on its activities, and 
 must propose "changes" in existing regulations and prepare new 
 regulations in light of its ceilings. This provides an explicit 
 mechanism, on an annual basis, for the review of baseline regulations 
 and regulations in new areas. 
 
 As is currently done, the agency submissions would then be analyzed 
 and hearings held in the fall by the Office of Management and Budget. 
 Agency officials would provide written and oral justifications for 
 all authority — budget and regulatory. After the hearings, Director- 
 review issue papers would be prepared on significant total cost 
 regulatory activities. 
 
 The same process can be followed in the case of other affected 
 agencies, though interagency review would be desirable. The decision 
 process vis-a-vis Presidential decisions is the same. The regulatory 
 review group is assumed to have met again to reassess aggregate and 
 other constraints. It is unlikely these constraints will be as 
 dynamic as the fiscal policy-guided budget totals, but will change as 
 new policy considerations dictate. 
 
 The budget is transmitted to Congress with its regulatory component 
 in January and hearings held. Regulating agencies would testify 
 before appropriation committees both on budget authority and on the 
 level of regulatory authority. The same House-Senate steps as required 
 for the budget will culminate in the President ' s approval or veto of 
 appropriation acts containing budget auhtority and/or regulatory 
 authority. 
 
 One other issue needs to be addressed: The role of the present 
 mechanism for issuing regulations via Federal Register and public 
 comment. That entails a much more detailed regulatory process than is 
 envisioned through a regulatory budget, and it may require modification. 
 The role of the regulatory review group will be important in assuring 
 that the regulatory process as implemented through Federal Register/ 
 public comment is coordinated with the constraints imposed by the 
 regulatory budget process. 
 
 The execution stage of the regulatory budget process involves verifi- 
 cation in two related respects: (1) that the regulatory steps consis- 
 tent with the levels enacted in the appropriation process have been 
 taken; and (2) that the cost estimates provided have been relatively 
 accurate. 
 
 III. Information Requirements . In order to implement the regulatory budget, 
 information must be collected on government and private sector costs. 
 This information must support several activities : 
 
 • The estimation of cost impacts of proposed regulations; 
 
B-6 
 
 • The comparison of actual costs with estimated costs by specific 
 classes of regulations, once these regulations are put into 
 force ; 
 
 • The maintenance of a baseline measurement of cost impacts of 
 all existing regulations; 
 
 • The study of industry and macroeconomic impacts of existing and 
 proposed regulations. 
 
 If accurate information can be obtained, tradeoffs between costs and 
 regulatory program benefits become possible through the political 
 process in an explicit, open, and accountable manner. 
 
 Government Costs . There are three types of government 
 regulatory costs to be collected. There is the direct government 
 cost of developing, administering, and enforcing regulations. 
 There is the effect of regulations on other federal operations. 
 Finally, programs making regulation-related payments to third 
 parties must be measured. 
 
 Direct government costs can be determined with only minor changes 
 in federal budget and accounting systems. The process described in 
 Office of Management and Budget Circular A-ll should be used for 
 that purpose. The impact of regulations on the federal govern- 
 ment's own operations can be established by supplemental data on 
 investment and operating costs, classified by regulatory program, 
 for each account — much of it generated directly by expanded 
 accounting systems. (Some cases would involve decisions on alloca- 
 tion of joint costs by program administrators.) Federal subsidies 
 and grants provided to other levels of government and the private 
 sector will require special analysis. Government costs should be 
 summarized by program and agency in the Special Analysis volume 
 that is submitted with the budget. It would also be essential to 
 estimate the total economic impact caused by these changes to the 
 federal budget, including such variables as Gross National Product, 
 prices, wages, interest rates, employment, etc. — best estimated 
 through use of a macroeconomic model. 
 
 Private Sector Costs . The government should strive not to 
 increase existing regulatory burdens or paperwork requirements in 
 collecting private sector costs. The information required includes 
 incremental investment and operating costs identified by regulation 
 or regulation type . Among the methods of obtaining this information 
 are: 
 
 Special studies (the "case study" approach) 
 
 Surveys by the government 
 
 Formal direct reporting 
 
 Adaptation of existing accounting systems 
 
 Calculation by means of models 
 
B-7 
 
 Special studies would be useful in fully explaining particular 
 effects of individual regulations. However, the method could not 
 be expanded, as a practical matter, to provide a regularized sys- 
 tem of reporting regulatory costs throughout the economy. Surveys 
 by government could be conducted separately or combined with 
 existing requirements through the Bureau of the Census. Surveys 
 could aim for comprehensive coverage or employ sampling techniques 
 to estimate regulatory costs. Though less expensive than special 
 studies as a method of generating industrial information, surveys 
 still take considerable time and cost to develop, test, and 
 administer. For direct reporting, the private sector could be 
 asked to tally regulatory costs on a regular basis through a 
 reporting format established by the government — a massive under- 
 taking, requiring many years to perfect. To initiate comprehensive 
 direct reporting, legislation would undoubtedly be required, 
 expanding the federal role in private sector operations and pro- 
 moting new growth in the bureaucracy. 
 
 If existing accounting systems were adapted, regulatory costs 
 could be shown as a separate item on an expanded business operating 
 statement. To generate the necessary information at lower levels 
 of detail, accounting systems would have to be modified. Such a 
 change could be effected through changing the Security and Exchange 
 Commission regulations governing submission of 10-K reports. New 
 accounting principles could also be established by the Financial 
 Accounting Standards Board of the American Institute of Certified 
 Public Accountants. Either of these approaches would undoubtedly 
 give rise, over time, to criteria and standards for handling the 
 many detailed accounting issues that must be confronted. However, 
 these approaches would take five to ten years to implement fully, 
 and would be costly. 
 
 Costs reported through special studies, surveys, and direct 
 reporting would be difficult to verify. Costs incorporated into 
 financial statements would be subject to audit and certification by 
 an independent Certified Public Accountant. Costs produced through 
 the Uniform Cost Accounting Standards Board would be subject to 
 review by government contract auditors. 
 
 We recommend that the total economic impact for direct private 
 sector incremental costs be calculated through use of macroeconomic 
 and industrial models. One provides information on Gross National 
 Product, prices, wages, profits, unemployment, interest rates, 
 government tax receipts, international trade, industrial production, 
 interindustry impacts, and similar variables. The other provides 
 details on how increased regulatory costs would affect final product 
 costs, the impact on prices, profits, taxes, cash flow, investment, 
 demand elasticities, and some consideration of substitution effects. 
 
 Which costs and which elements are included in the regulatory 
 review process is obviously a policy decision, but the best way to 
 
B-8 
 
 ensure that the regulatory budget never gets off the ground is to 
 attempt, initially, to include all regulatory activity. 
 
 IV. Budget Presentation . The heart of a budget accounting system is 
 
 contained in the budget appendix. It provides a detailed accounting 
 of the obligations or liabilities to be incurred by activity level 
 within the account, prefaced by the applicable appropriation language 
 consistent with the budget authority request needed to finance the 
 proposed set of activities. Because we assume that a regulatory 
 budget would be fully integrated into the regular budget documents, 
 the format of the regulatory budget presentation should differ as 
 little as possible from the existing budget format. Tables 1 through 
 10 are illustrations of regulatory budget tables as they might be 
 developed for submission to Congress. 
 
 Table 1 presents a hypothetical government cost account for a "Mine 
 Safety Program" within a regulating agency. While the numbers shown 
 are imaginary, the relative distributions are taken from an actual 
 budget account for a regulating agency. 
 
 Table 2 takes the total obligation line in Table 1 (line 10.00) and 
 breaks it down in terms of the kinds of obligations that are incurred. 
 Since this government account is "salaries and expenses" intensive, 
 in-house costs comprise an overwhelming percentage of total obligations. 
 The Object Classification Table could be further subdivided on the basis 
 of the existing/new regulations breakdown provided in Table 1. 
 
 In Table 3, "Regulatory Authority Language" refers to private sector 
 costs. Here, "costs" resemble accountable obligations in industry. 
 If firms incur such liabilities because of government regulations, the 
 figures for the particular year are presented here . Some activities 
 in Table 1 are unique to government and not replicated in Table 3. All 
 outlays are financed from private sector sources. Whether the costs 
 imposed upon the private sector are much less or much greater than 
 government costs remains to be determined. 
 
 In Table 4, private sector cost impacts are broken down by sector of 
 the economy and by type of cost. Oversimplified, the table shows what 
 the function of an object classification table would be. 
 
 Table 5 is a "justification" describing benefits of the regulatory 
 activities, which often cannot be assessed in dollar terms. Many 
 government programs are obliged to use measures of program "impacts" 
 or inputs in lieu of benefits. Obviously, the number of mine improve- 
 ments shown in this table is not the ultimate measure of program 
 effectiveness, but the reduction of accidents and other problems 
 resulting from these improvements. 
 
 Table 6 shows how one regulatory agency may affect the operations of 
 other government agencies. Tables 7 and 8 display the budget authority 
 and regulatory authority changes consistent with new legislative 
 proposals. Table 9 adds up all relevant costs for mine safety regu- 
 lation. 
 
B-9 
 
 Table 10 illustrates the skeleton summary that could be presented, 
 with breakdowns based upon government costs and private sector costs 
 The private sector would be divided according to regulating agency. 
 The costs imposed by a given agency would be identified, as well as 
 the sectors upon which those costs were imposed. 
 
 _ 
 
B-ll 
 
 Table of Contents 
 
 Page 
 
 I . Introduction B-13 
 
 II . The Conceptual Framework B-14 
 
 A. Management of the regulatory system B-14 
 
 B. The regulatory review process and the economic 
 
 policy process B-17 
 
 1 . The current economic policy process B-17 
 
 2. The regulatory review process and economic policy B-19 
 
 C. The regulatory budget and the traditional budget B-20 
 
 1 . The current budget process B-20 
 
 2. The inclusion of the regulatory budget into the 
 
 traditional budget cycle : formulation B-26 
 
 3. The inclusion of the regulatory budget into the 
 
 traditional budget cycle : execution B-30 
 
 III . Budget Presentation B-31 
 
 A. Budget tables B-31 
 
 B . Cost Definitions B-40 
 
 1 . Government costs B-45 
 
 2 . Private sector costs B-46 
 
 C . Regulatory programs to be included B-47 
 
 IV. Information Requirements B-49 
 
 A. Use of regulatory cost information B-49 
 
 B . Government costs B-50 
 
 C. Private sector costs B-51 
 
 1 . Special studies B-52 
 
 2 . Surveys B-52 
 
 3 . Direct reporting B-52 
 
 B-53 
 
 4 . Existing accounting systems 
 
B-13 
 
 I . Introduction 
 
 Some economists and others interested in the regulatory process view 
 the regulatory budget as a system of management — a tool that can be used 
 within the Executive Branch of the Federal government to systematically 
 review regulations and their impact upon public and private resource allo- 
 cation decisions , and a system to improve the efficiency of the regulatory 
 process. The underlying assumption in this paper is that the regulatory 
 budget contains at least two elements: (1) a regulatory review process; 
 and (2) an annual budget review process that encompasses both Executive 
 Branch and Legislative Branch decisions. The purpose of this paper is to 
 provide a conceptual framework for the integration of a comprehensive 
 regulatory review process on the one hand with the annual budget process on 
 the other. Just as the annual budget process imposes resource constraints 
 upon decisionmaking, so the purpose of a regulatory budget is to examine 
 Federal regulations within the "limits" of Federal and private sector 
 resources. It is hoped that the decisionmaking process will become more 
 sensitive to the total "costs" of regulation, and that more effective 
 review will be accomplished. The regulatory budget would detail government 
 costs associated with regulation, including those imposed by one agency upon 
 another. And, such a system would impose the budget discipline, with the 
 pressures of a constrained environment and the interactive process within 
 which priorities are reshaped, on a regulatory management system. 
 
 With those underlying assumptions established, our conceptual work is 
 logically divided into three distinct tasks: (1) the development of some 
 organizational options relative to a regulatory review process; (2) the 
 integration of the regulatory review process into the economic policy 
 process; and (3) the melding of that system with the traditional budget 
 process. Task (1) provides a tentative outline of the structure of the 
 Executive Branch review process independently of the budget process. 
 Task (2) serves as a bridge to the budget process applied in this area, and 
 task (3) is a detailed exposition of the budget process given the review 
 process established in (1) and (2) . Section II covers each of these con- 
 ceptual tasks in turn. Section III provides a detailed discussion of the 
 inputs to a budget presentation, including tables, cost definitions, and 
 programs that might be included in the regulatory budget . Finally , section 
 IV presents an overview of the information requirements that have to be 
 included in an operational regulatory budget. 
 
 Section II is a self-contained conceptual piece that addresses the 
 structure of the regulatory budget. Sections III and IV taken together 
 contain the more detailed discussions that focus on the presentation , 
 measurement and scope of the regulatory budget. 
 
 -■•Private sector costs or "impacts" would also be included in this 
 budget process and discipline. 
 
B-14 
 
 II* The Conceptual Framework 
 
 This section builds logically from a general discussion of management 
 information systems and broad organizational options to a particular focus 
 that functionally and organizationally brings together the economic policy 
 process and the regulatory review process. The next step is to translate 
 that suggested process into a regulatory budget concept and that is 
 discussed in the last subsection. 
 
 A. Management of the regulatory system 
 
 The basic premise underlying the planning process, both in private 
 sector and public sector contexts , is that the development of management 
 information systems represents the first step towards incorporating 
 relevant factors (i.e., "information") into the decisionmaking process. 
 In the abstract, this system raises the consciousness of decisionmakers 
 to a particular set of variables not previously focused upon and implicitly 
 allows information to be internalized in all future decisions. Thus, in 
 theory, one could argue that to properly manage the regulatory system, 
 information on the costs (Federal and non -Federal) as well as measures of 
 the benefits need to be formally and uniformly developed across agencies. 
 A central office within the Executive Branch (such as the Office of 
 Management and Budget) , or a separate office within the White House) 
 would be charged with the responsibility for establishing a uniform 
 format. This latter condition is not essential. What is important is 
 that a management information system can be viewed either as the first 
 and necessary step in the development of a regulatory review process or_ 
 as one option (i.e., a management information systems approach) for 
 regulatory review. Stopping at this juncture would imply a non-centrally 
 directed process. In other words, the current system complemented by a 
 centrally imposed information requirement would constitute the "regulatory 
 review process." That review would be intra-agency or intra-Departmental 
 at best. It would assume that the establishment of an information system 
 would be sufficient to substantially improve the current process. 
 
 At the other end of the continuum — and building upon the information 
 system developed above — would be the development of a centrally directed 
 regulatory evaluation system that would use both the management information 
 system and outside information and analysis as appropriate . 3 
 
 2 ln fact, the current system (as of March 23, 1978) can best be 
 described as the "old system" complemented by a centrally imposed — via 
 Executive Order 12044 — requirement that greater internal review be 
 undertaken before agency regulations are approved. 
 
 ■^Intermediate approaches would include centrally imposed internal 
 reviews without any management information system requirement, or, 
 alternatively, both a well-defined uniform management information system 
 and an internal review process that stops short of outside centrally 
 directed evaluation and review. 
 
B-15 
 
 The approach taken here reflects the view that, notwithstanding 
 the positive contribution of a management information system, the most 
 compelling force that affects decisionmaking is the constituent pressures 
 that are continually applied in the rulemaking process. The regulatory 
 agency may not weigh as heavily the unconcentrated general public concerns 
 as the more vociferous concentrated interests that are closely following 
 and more knowledgeable of the effects of a given regulation . Thus , the 
 view that an incentive is required to change behavior — that a management 
 information system per se does not provide such an incentive — leads 
 naturally to a more active role for a central oversight agency that would 
 balance the localized constituent pressures otherwise dominating the 
 decision process. The important characteristic of this approach is the 
 degree of involvement of central organizations in the review process 
 itself. This does not mean that a central agency, such as the Office of 
 Management and Budget, or some other organization within the Executive 
 Office of the President, would necessarily become involved in the decision- 
 making process with regard to each and every regulation. While involvement 
 in individual decisions, particularly those with significant impacts on the 
 economy, would not be precluded, the primary function of the central agency 
 would be to establish constraints or "targets" within which the regulating 
 agency would operate. Beyond that, it might also establish constraints 
 differentially among several areas, depending upon policy and program 
 considerations. (The definition of "constraints" in the regulatory context 
 will become clearer as the discussion proceeds and the concept of the 
 regulatory budget is more fully developed.) 
 
 Once central involvement in the review process is established as the 
 direction for a regulatory review system, then several organizational 
 suboptions have to be considered. These suboptions vary depending upon 
 the degree to which the regulatory review process penetrates the operational 
 structure of a particular agency. There are three broad classes of options 
 for the organizational structure of a review process: 
 
 (1) A process involving a central agency (let us 
 call it an OMB/White House group) that "oversees" 
 the current regulatory process and becomes 
 involved only as it sees fit and on a periodic 
 basis; 
 
 (2) An evaluation process that includes an OMB/ 
 White House type organization and the involve- 
 ment of the upper levels of a proposing agency 
 or Department, e.g., the Assistant Secretary 
 for Planning and Evaluation office within a 
 Cabinet-level Department; 
 
 (3) A review system similar to "(2)" except that 
 the specific program (or agency within a larger 
 Department) would be formally included in the 
 process. 
 
B-16 
 
 The first option represents an informal system in which a central 
 group evaluates significant regulations (i.e., regulations that may be 
 of interest for policy reasons or because of impacts on particular sectors 
 of the economy) issued by a particular agency. The reason that we would 
 categorize this system as "informal" has to do with the omission of other 
 groups at the agency level. Any formal submission would perforce involve 
 the issuing agency and/or the upper policy levels of the Department or 
 Agency that are outside the immediate environment of the regulating program. 
 Thus, the organization implied by option (1), while very close to the 
 Regulatory Analysis Review Group currently operating out of the Council of 
 Economic Advisers, precludes interaction between the central review organi- 
 zation and the issuing agency. On the other hand, the second option implies 
 interaction between the upper levels of the proposing agency and the central 
 review group, but no involvement of the issuing agency. The third option 
 represents a fully interactive review process involving all levels. These 
 theoretical options are reduced once the configuration of the decision 
 levers at the disposal of the central review group is examined . For example , 
 the system depicted in option (1) would be feasible — although not desirable — 
 under limited circumstances: (a) if the decision review process were an all 
 or nothing, yes-or-no system, so that an OMB/White House group would have 
 veto power over any given regulation without authority for modification; or 
 (b) if the decision process did incorporate the added feature of modification 
 authority, but changes were "dictated", not negotiated. Neither decision 
 alternative appears very attractive. Veto power by itself might not result 
 in the kind of constructive review system that would shape better regulations. 
 Modification authority without interaction could prove dangerous , particularly 
 if changes are made by the central review unit without full knowledge of other 
 program regulations or institutional factors. 
 
 The difference between organizational options (2) and (3) may be more 
 apparent than real for at least two reasons. First, while an evaluation 
 system that formally precluded the issuing agency from participation would 
 (in theory) not allow interaction between the latter and the central review 
 group, there could be sufficient involvement between an upper-level policy 
 agency and the issuing agency so that the regulatory agency would be involved 
 in the review process. Second, the knowledge gap, which may strongly hinder 
 an arrangement such as option (1) , would not be as great between the two 
 units within an agency as between a central evaluation team and an issuing 
 agency. Thus, in this case, even if the regulatory unit is not allowed to 
 participate and interact in the evaluation process, that would not necessarily 
 result in an ineffectual regulatory review system. ^ 
 
 The notion that the difference between these two options is blurred is 
 not unlike the budget process at various stages. Some Departments attempt 
 to formally maintain an OMB/Office of the Secretary process without agency 
 participation, while in other cases the individual agencies formally parti- 
 cipate. In both situations, however, the individual agency usually becomes 
 involved — via direct contact with OMB, or via the Office of the Secretary. 
 
B-17 
 
 The conclusions of this discussion on organizational options are 
 twofold. First, the most likely structure of a regulatory review process 
 would involve a central unit — most likely located in the Executive Office 
 of the President — and an agency (or Department) from which the regulation 
 under review was issued. This would allow for several iterations/appeals 
 and "negotiations." The second conclusion that follows almost logically 
 from the first is that the decision levers at the disposal of the review 
 unit ought to include "veto" power over the regulating agency at the 
 extreme , but would also include authority for changes or for setting 
 guidelines and boundaries within which the regulatory process functions. 
 More specifically, the kinds of analysis that are conducted by the issuing 
 agency to assess the costs of regulation may be subject to guidelines 
 issued by our central review group. Or, the review group could establish 
 constraints on private sector impacts for any single regulatory action, or 
 for any one agency regulating a particular set of activities in the economy. 
 These are just a few examples of the kinds of decision levers that an 
 evaluation unit could have that fall outside the strict decisionmaking 
 process on individual regulations. In general, it is likely that the 
 more control this group maintains over the system and the less it becomes 
 involved in evaluating individual regulations, the more effective the 
 review process and the central regulatory authority will be . 
 
 B. The regulatory review process and the economic policy process 
 
 This subsection reviews the current economic policy process and its 
 relationship to the budget process , and then suggests an integration of 
 a regulatory review framework into the current economic policy system. 
 The framework thus established is consistent with the organizational 
 structure outlined in the previous section and provides a logical nexus 
 to the regulatory budget concept to be discussed in the next section of 
 the paper. 
 
 1. The current economic policy process 
 
 The current economic policy involves the staffs and economic 
 policy officials from the following agencies : the Council of Economic 
 Advisers, the Office of Management and Budget, the Department of the 
 Treasury, the Department of Commerce, and the Department of Labor. This 
 group is concerned exclusively with macroeconomic variables and policy 
 issues. They meet on approximately a quarterly basis, but their activities 
 are coordinated with the formulation stages of the budget process. The 
 results of the economic policy process — including decisions by the heads 
 of the five agencies involved and ultimately the President — are the fiscal 
 policy assumptions that determine the constraints on the Federal budget as 
 it is formulated. 
 
 Previously, the process included only the CEA, OMB, and the Treasury 
 Department, and was referred to as the Troika. 
 
B-18 
 
 The typical scenario works as follows. The staffs and economic policy 
 officials convene and agree on a common set of assumptions regarding fiscal 
 policy, monetary policy, energy, net exports, and perhaps the behavior of 
 some endogenous variables such as food prices. With the possible exception 
 of policy assumptions, there is no required set of variables on the list of 
 assumptions. For example, sometimes the level of state and local spending 
 is put on the list of assumptions, and on other occasions it is excluded. 
 This is the primary purpose of the first meeting. Once this common set of 
 assumptions is agreed upon, a set of simulations is run by the different 
 staffs using a number of macroeconomic models. Each agency is usually 
 assigned a different model so as to avoid duplication. The models are 
 simulated over the short run (2 or more years) and the components of Gross 
 National Product are examined. A second meeting is thereupon convened and 
 the various estimates from the different macroeconomic models are compared 
 and a second iteration occurs with respect to assumptions. This step is 
 important for a number of reasons. First, based upon a consensus of the 
 models simulated, there may be several non-policy assumptions that do not 
 provide reasonable forecasts. Second, there may be differences between 
 selected macromodels for individual sector behavior. These differences 
 then have to be reconciled. The result of the second meeting is a more 
 precise set of assumptions and the simulation results (not "forecasts" as 
 such) consistent with those assumptions. This then provides the apparatus 
 for alternative fiscal policy assumptions and the effects of those alterna- 
 tives on the economy. Once those alternatives are formulated and the 
 differential effects measured, the economic decision process is initiated 
 and leads to fiscal policy decisions made ultimately by the President. The 
 decision process does not necessarily occur on a quarterly basis. However, 
 the President must make those fiscal policy choices (Federal spending and 
 tax receipts) in preparation for the budget process and periodically 
 throughout the year. The process described before, in terms of the examina- 
 tion of policy and economic assumptions, does generally occur on a quarterly 
 basis. 
 
 It is important to note that the economic process just described is not 
 oriented towards longer run considerations and is not interested in structural 
 questions or particular sector effects. To the extent that the regulatory 
 process imposes costs that contribute significantly to the inflation rate in 
 the short run the current process, in theory, could focus upon it. But to 
 the extent that sets of regulations do not have short-term effects or to the 
 extent that they affect the level of prices but not the rate of inflation on 
 a continued basis, they will not be reviewed in this context. Thus, the 
 current economic policy process is concerned with short-term macroeconomic 
 effects." 
 
 ^The Regulatory Analysis Review Group that operates out of the Council 
 of Economic Advisers does occasionally review individual regulations , but 
 not on a systematic basis. 
 
B-19 
 
 2. The regulatory review process and economic policy 
 
 To the extent that fiscal policy concerns are outside of the 
 purview of regulatory evaluation, there does not seem to be a role for a 
 regulatory review apparatus within the "TROIKA" structure. However, it is 
 conceivable that there are "cliffs" — significant regulations that affect 
 costs so overwhelmingly in a particular sector that they have an effect on 
 the overall inflation rate. 
 
 Even in the absence of explicit macroeconomic effects, there is an 
 inherent attraction to replicating the structure of the Troika mechanism, 
 if not actually imbedding the regulatory review group within the operational 
 boundaries of the economic policy process. The critical role of the economic 
 policy process is to provide the fiscal policy constraints within which 
 budget priorities are made. The process does not involve decisions on 
 spending for individual programs per se. That becomes the role of the 
 Office of Management and Budget. At a minimum, therefore, the regulatory 
 review process might start with a group that provides some constraints and 
 meets periodically to re-examine those constraints in the light of policy 
 and other considerations. Such a group could also provide inputs to the 
 macroeconomic policy parameters , and could also provide sector-by-sector 
 details of regulatory effects to the regular macroeconomic group. That 
 does not mean that the information thus provided would be directly relevant 
 to the function of the Troika group. The interaction between the two groups 
 would provide an environment in which there could, at least occasionally, 
 be mutual benefits and each group would be aware of the most current 
 developments within each other's function. 
 
 The responsibilities of the regulatory group may be viewed from two 
 perspectives. First, it would provide (or would be provided) assessments 
 of the impact of regulations on a sector -by-sector basis and, if applicable, 
 would analyze the effects of Federal regulations on macroeconomic policy 
 parameters. The second perspective involves the way in which each functional 
 area would be analyzed. That is, the regulatory review would categorize the 
 effects of regulations as between new regulations (or starts) and existing 
 regulations. 
 
 After this information has been processed, the review group would 
 establish annual guidelines. Those guidelines, at a minimum, would establish 
 ceilings on regulatory impacts^ as guidance for the budget process. Beyond 
 that, the group could impose additional side restrictions, perhaps distin- 
 guishing between new and existing regulations , or distinguishing between 
 
 7 
 There are many economists who would argue that the effectiveness of 
 
 fiscal policy, particularly with respect to curbing inflation, has been 
 
 diminished because of the insidious impact of Federal regulations on the 
 
 economy. However, while there are empirical estimates of the effects on 
 
 particular industries, the assertion with regard to fiscal policy remains 
 
 an essentially untested hypothesis. 
 
 o 
 
 We will define the term impact later in the paper. Under some 
 circumstances, it is synonymous with cost. 
 
B-20 
 
 groups of agencies. 9 The review team might also establish guidelines with 
 respect to regulatory effects on particular sectors of the economy. Thus, 
 while the aggregate target could not be exceeded, the individual restriction 
 would also have to be met. 
 
 The relationship of the regulatory review team to the budget process 
 would be similar to the relationship of the TROIKA group to the budget. 
 (The precise nature of the regulatory budget will be explored in the next 
 section.) Schematically, this is represented in Figure 1. Figure 1-A 
 represents the current relationship between the economic policy process 
 and the budget, while Figure 1-B shows a proposed structure that includes 
 a regulatory review group. Notwithstanding the interaction between the 
 two groups, the major influence of the regulatory group on the budget is 
 via the guidelines that are directly imposed on the budget process . Its 
 influence on fiscal policy guidelines is presumed to be the second order 
 of smalls. 
 
 Precisely what those guidelines contain and how they can be translated 
 into the budget process is the subject of our next section. 
 
 C. The regulatory budget and the traditional budget 
 
 This section first provides a brief description of the current budget 
 process and discusses the involvement of the current economic policy structure. 
 It then presents a detailed description of the way in which the regulatory 
 budget would work. The discussion will be conceptual but will bring together 
 details of the budget with the appropriate application of the regulatory review 
 process. 
 
 1. The current budget process 
 
 The basic characteristic of the overall budget process is its 
 intrinsically interactive nature — interactive with respect to the various 
 decisionmakers in the organizational hierarchy that are involved in budget 
 decisions at different decision points, and interactive with respect to the 
 different stages of the budget process which influence each other on a 
 continual basis. The stages of the budget process that we will discuss 
 include executive formulation, congressional actions and execution. 
 
 9 
 To provide a more concrete example , suppose the regulatory review 
 
 team found that the effect of regulations from three specific agencies on 
 
 a given sector of the economy was intolerably high. Then they could impose 
 
 ceilings not only on aggregate regulatory impact but on the regulatory 
 
 impact of those three agencies combined. 
 
B-21 
 
 FIGURE 1-A 
 
 ECONOMIC POLICY AND THE BUDGET 
 CURRENT PROCESS 
 
 Economic Policy 
 Process 
 
 Fiscal Policy 
 Assumptions 
 
 Budget 
 Process 
 
B-22 
 
 FIGURE 1-B 
 
 ECONOMIC POLICY, THE BUDGET AND REGULATORY POLICY: 
 PROPOSED INTEGRATION 
 
 
 Economic Policy Process 
 
 
 
 TROIKA 
 
 
 RRG 
 
 
 
 
 f / 
 ) / " 
 
 
 — XV 
 
 
 Fiscal Policy 
 Assumptions 
 
 Budget 
 Process 
 
 Regulatory 
 Guidelines 
 
B-23 
 
 Formulation 
 
 The formulation process begins approximately 18 months prior to the start 
 of the fiscal year for which budget recommendations are made . Thus , for 
 example, that process began in the spring of 1977, for fiscal year 1979, 
 which starts on October 1, 1978. We can view the formulation process as 
 involving three main players: the Office of Management and Budget, the 
 agencies and Departments, and the economic policy group mentioned before. 
 
 The formulation process can almost be thought of as two simultaneous 
 systems or processes that merge. The first, a "top down" approach starts 
 with the TROIKA group and their input into the economic process. Simulations 
 are put together for the state of the economy under specified fiscal policy 
 assumptions. In April, OMB issues instructions to the agencies on materials 
 to be developed for a spring planning review. The agencies, in response, 
 submit projections of requirements that reflect current operations and future 
 plans. During May and June, OMB will highlight specific program and budget 
 issues for the President. Discussions will occur among OMB officials, 
 departmental officials, and the President about program developments and 
 their budgetary implications. This part of the formulation process culminates 
 in June with the establishment of Presidentially-determined budgetary ceilings 
 issued to each Department and major agency to be used for their subsequent 
 budget requests that will come back to OMB in the fall. 
 
 Meanwhile, during the same spring period, individual programs within 
 agencies submit their budget requests (based upon program "needs") by account 
 and usually activity within account, to higher level decisionmaking units. 
 There are numerous feedback loops within the agencies that reflect appeals 
 and negotiated decisions at various levels . For example , there is probably 
 a feedback loop between the program Assistant Secretary level and individual 
 programs, and further feedback loops between the Budget office in the Office 
 of the Secretary and the program Assistant Secretary. The important point 
 is that this process in the agencies is well under way by the time ceilings 
 are provided by OMB in June. 
 
 The internal agency process is completed in the fall and formal requests 
 ("estimates") are transmitted to OMB, including projections of requirements 
 for future years. " At the same time that this has been going on, the economic 
 policy group has gone through at least one more iteration. Before the 
 President made the June decisions, some tentative fiscal policy alternatives 
 were presented to him and decisions made. The June ceiling numbers, in the 
 aggregate , reflected those decisions . This decision relationship — aggregate 
 budget ceiling levels following closely after fiscal policy decisions — is 
 repeated as final formulation decisions are reached. 
 
 ■ L0 The budget process also now requires agencies to submit two 
 additional years of "budget requests" when transmitting their submissions 
 to OMB. However, appropriation requests by the President are not yet on 
 a multiyear basis. 
 
B-24 
 
 The formulation process also involves the use of zero base budgeting. 
 The latter is a tool for analyzing resource requirements for existing 
 activities or programs as well as new programs, and involves managers at 
 all levels in the budget process. Zero base budgeting provides a mechanism 
 for evaluating program increments — including minimum levels — and providing 
 explicit information on relevant agency and program priorities. In the ZBB 
 process, a set of decision packages is prepared for each decision unit. The 
 decision unit is the program or organizational entity for which budgets are 
 prepared and significant resource decisions are made. Very often, the 
 decision unit corresponds to the activity level within an appropriation 
 account. The decision package provides information on alternative ways of 
 performing the same objective, and different funding levels for achieving 
 a selected objective or set of objectives. Each decision unit usually 
 contains at least three decision packages: a minimum level, current level, 
 and an improvement level. The minimum level reflects that level of funding 
 below which it is not feasible to continue the program or activity. The 
 current level is an increment, which when added to the minimum level, 
 provides a program which conforms to current output levels. It does not 
 reflect major policy changes. The improvement level represents one or more 
 increments above the current level and thus could reflect policy changes. 
 Decision packages are ranked in decreasing order of importance across 
 decision units. At higher management levels, rankings are merged with decision 
 packages for the entire agency. Funding levels are then determined by the 
 establishment of a cutoff point. 
 
 In the fall review process , OMB analyzes individual agency budget 
 submissions, holds hearings with agency representatives and then prepares 
 issue papers for review by the Director on significant budget issues . The 
 Director makes initial decisions which are, in many instances, appealed by 
 the agency to OMB and the President (more feedback loops) . This occurs in 
 December. There is usually one last iteration with the economic policy 
 process — to make sure that the sum of the "decisions" is consistent with 
 finalized fiscal policy objectives. OMB then (with input from the agencies) 
 prepares the budget with summary tables and appendix, special analyses and 
 budget-in-brief, and drafts the President's budget message. The President 
 revises and approves the budget message. The President's recommended budget 
 is transmitted in January. 
 
 Congressional Appropriation Actions 
 
 The steps involved in the Congressional Appropriation process are as 
 follows : 
 
 • House receives budget with President's message and 
 refers it to Appropriations Committee. 
 
 • Full Committee on Appropriations may hold hearings 
 with the Director of OMB and Secretary of the 
 Treasury . 
 
 • Subcommittee on Appropriations receives written 
 justifications from each agency. Holds hearings. 
 Drafts appropriations bill and report. 
 
B-25 
 
 • Chairman of subcommittee introduces bill to Full 
 Committee, which reviews actions and adopts or 
 revises bill. 
 
 • House votes amendments and the reported bill. 
 
 • Senate receives bill from House and refers it to 
 Appropriations Committee . 
 
 • Subcommittee on Appropriations receives agency 
 justifications and appeals from House action. 
 Holds brief hearings (Senate hearings are some- 
 times held before House completes action) . 
 Drafts amendments to House bill . 
 
 • Full Committee on Appropriations adopts or revises 
 subcommittee amendments and reports to Senate . 
 
 • Senate debates bill and passes it, usually with 
 amendments . 
 
 • House receives and considers the amended bill from 
 the Senate; if disagrees with any Senate amendments, 
 then requests a conference . 
 
 • Conference Committee considers items of disagreement 
 between Houses . Recommends compromises in report to 
 each body. 
 
 • House and Senate consider and pass amended bill. 
 
 • Bill sent to President who can approve, veto, or 
 permit to become law without approval. 
 
 Superimposed upon the congressional appropriations procedure is the 
 relatively new Congressional Budget process, which is designed to impose 
 constraints on the legislative side just as are imposed on • the executive 
 side. The most significant steps in that procedure (with accompanying 
 dates) are: 
 
 • The President transmits to Congress the first update 
 of the budget. (April 10) 
 
 • Budget Committees report first required concurrent 
 budget resolution containing a comparison of con- 
 gressional budget targets and budget estimates 
 within the President's budget. (April 15) 
 
 • Congress completes actiort on first concurrent feildget 
 resolution. (May 15) 
 
B-26 
 
 • The President transmits to Congress the second update 
 of the budget. (July 15) 
 
 • Congress completes action on bills and resolutions 
 providing new budget authority and new spending 
 authority. (7th day after Labor Day) 
 
 • Each Budget Committee reports a second required 
 concurrent budget resolution which reaffirms levels 
 set in first budget resolution or revises levels by 
 directing committees to draft legislation changing 
 budget authority, revenue, public debt, or any 
 combination thereof. (No specified date) 
 
 • Congress completes action on second concurrent 
 budget resolution. (September 15) 
 
 • Congress completes action on any required recon- 
 ciliation bill or resolution, or both, implementing 
 second required concurrent resolution. (September 
 25) 
 
 Execution 
 
 The execution stage commences after the enactment of the appropriations 
 bill . Agencies prepare spending plans and apportionments , and these are 
 submitted through the chain of command to OMB. The latter is required, under 
 law, to apportion the authority contained in appropriations acts. As authority 
 is obligated, reports are prepared detailing actual obligation levels (usually 
 by month) . Copies of these obligation reports are sent to OMB. 
 
 Having described the several stages of the budget process , we do not 
 want to leave the impression that the basic process is sequential. Quite 
 the contrary, formulation (for a subsequent fiscal year) can be proceeding 
 at the same time that budget execution is being carried on. Reformulation 
 can occur if policy considerations dictate a request by the President for 
 supplemental appropriations. Thus, in many respects, the budget process is 
 continuous and simultaneous with respect to its constituent parts. 
 
 2 . The inclusion of the regulatory budget into the 
 traditional budget cycle : formulation 
 
 The inclusion of the regulatory budget into the traditional 
 budget requires two kinds of information: government costs and private 
 sector "costs. "*•*• This section will show how those two elements can be 
 incorporated into the executive formulation and congressional appropriations 
 process . 
 
 ■'■In a later section, we discuss in summary fashion some of the conceptual 
 problems inherent in the term "private sector costs." Here, we assume that this 
 
 Sroblem is resolved so that we can focus on the process of incorporating regu- 
 ation in the annual budget decision system. 
 
B-27 
 
 The regulatory review group (RRG) will provide the same kind of 
 guidance in this process as its counterpart provides with respect to 
 fiscal policy boundaries. Thus, at some early stage in the formulation 
 process (spring/summer) we will assume an aggregate constraint (Presidentially- 
 determined) on total government regulatory costs and total private sector 
 costs attributable to Federal government regulation. We will further assume — 
 for simplification — that two kinds of Federal entities can easily be defined. 
 The first can be referred to as a regulating agency. Its primary function is 
 to impose regulations/standards in order to effect certain conditions, e.g., 
 clean air standards, auto emission standards, safety standards in the work- 
 place, etc. All of the costs of operating that agency are direct government 
 regulatory costs . The other entity for purposes of this analysis might be 
 termed "other affected agency." Its primary function is not regulatory but 
 there are three ways in which regulatory activities affect its operating 
 costs: 
 
 (1) There may be pockets of regulatory activity 
 for which cost allocation assumptions are 
 required in order to "break out" relevant 
 costs. 
 
 (2) There are agency compliance costs that are 
 imposed either by other regulating agencies 
 or by "pockets" within the agency. 
 
 (3) There are obligations incurred for private 
 sector activities that reflect compliance 
 with the standards of a regulating agency 
 
 (e.g., HUD grants to state and local govern- 
 ments necessitated by EPA regulations) . 
 These are included for purposes of government 
 budgeting, but are excluded when the total 
 costs of regulation are derived. 
 
 All government costs "flow" through the budget process now. However, 
 they may not be judged or evaluated in terms of the regulatory budget 
 concept . 13 
 
 The steps referred to in the formulation process can now be described 
 for each of these two entities . The regulating agency is given an "agency 
 ceiling" in June which it uses as guidance for submission of budget require- 
 ments to OMB in the fall. However, that budget guidance would contain the 
 following details : 
 
 l^The term agency simply means a well-defined unit that does not 
 require further assumptions for cost allocation purposes . It does not 
 have to be defined as a Department or self-contained Agency. 
 
 13 
 
 There may be difficulties under come circumstances particularly when 
 
 evaluation of an activity is based upon other program criteria, i.e., when 
 
 the regulatory activity is part of a joint product. 
 
B-28 
 
 • Direct (government) cost ceiling (budget authority 
 or obligations) for existing regulations 
 
 • Direct cost ceiling (BA or obligations) for new 
 
 (fiscal year Budget Year) regulations 
 
 • Private sector Regulatory Authority for existing 
 regulations 
 
 • Private sector Regulatory Authority for new 
 regulations 
 
 All four categories are contained in the budget that the President submits to 
 the Congress. The "new regulations" refer to anticipated actions by the agency 
 in the year for which the budget is being transmitted. The concept "Regulatory 
 Authority" is akin to budget authority, but in this case it refers to authority 
 to impose costs upon the private sector. Like budget authority, it must pass 
 through the appropriations process. It does not necessary have to be a 1-year 
 authority. That depends upon the nature of the regulating activity. 
 
 What occurs during the summer months is similar to what was described 
 during the regular budget formulation cycle with one major exception. The 
 agency must prepare regulatory authority estimates based upon its activities, 
 and must propose "changes" in existing regulations, and prepare regulations 
 in new areas in the light of its ceilings. ^ This provides an explicit 
 mechanism — on an annual basis — for the review of baseline regulations and 
 regulations in new areas . 
 
 (Under the new multiyear budget planning system, first established for 
 preparation of the FY 1980 President's budget,. 2 additional years must be 
 provided and decisions presumably made in this context. However, as mentioned 
 previously, appropriation requests will still be made only for the budget 
 year . ) 
 
 The agency submissions would then be analyzed and hearings held in the 
 fall by OMB, just as is currently done. Agency officials would provide written 
 and oral justifications for all authority — budget and regulatory. After the 
 hearings, Director-review issue papers would be prepared on significant total 
 cost regulatory activities. 
 
 The same process can be followed in the case of other affected agencies. 
 However, interagency review is desirable in assessing costs imposed by one 
 agency upon another. If feasible, those costs imposed by other (regulatory) 
 agencies would be cross-tabulated by agency, and by existing and new regula- 
 tions . More review and further decisions may be required with respect to 
 regulating agencies, particularly when costs imposed upon other Departments 
 are "uncontrollable . " 
 
 14 
 
 The regulatory agency must also prepare its regular direct (i.e. 
 
 government) requirements allocated between new and existing regulatory 
 
 activity. 
 
B-29 
 
 The decision process vis-a-vis Presidential decisions is the same. 
 The RRG is assumed to have met again to reassess aggregate and other 
 constraints. It is likely that these constraints will not be as dynamic 
 as the fiscal policy guided budget totals, but will change as new policy 
 considerations dictate . 
 
 One additional concept requires elaboration. Just as the budget 
 authority (and outlay) implications of legislative proposals are often 
 displayed in the budget process, so too would the regulatory authority 
 implications of legislative proposals be shown. (The President's 
 "Regulatory Legislative Program" would be a separate section in the 
 Budget Appendix.) The legislative proposals would include such items 
 as new procedures in the regulatory area, significant changes in laws 
 authorizing regulatory activity in particular programs, and so on. 
 
 The budget is transmitted to the Congress with its regulatory component 
 in January and hearings held. The appropriation process would not be changed 
 relative to the steps outlined previously. However, regulating agencies 
 would testify before "appropriation" committees, not just on budget authority, 
 but on the level of regulatory authority as well. 15 
 
 The same House-Senate steps as listed before culminate in the President's 
 approval or veto of appropriation acts containing budget authority and/or regu- 
 latory authority. In terms of other congressional steps, the most significant 
 aspects of the new congressional budget procedures should be maintained here . 
 That is, the Budget Committees should incorporate in both reported concurrent 
 resolutions the targets for regulatory authority as well as budget authority 
 and outlays. They could, alternatively, add together regulatory authority 
 and the budget authority emanating from government regulatory activities as 
 a separate constraint. (This may not make a great deal of difference since 
 RA will dominate over BA in any case.) Congress would complete action, after 
 reports from the Budget Committees, on first (May 15), and second (September 
 15) concurrent resolutions containing the new concepts. All actions on indi- 
 vidual appropriations would have to be completed by the 7th day after Labor 
 Day. Congress would further complete reconciliations between individual bills 
 and the second concurrent resolution (September 25) . 
 
 The same updating requirements that are required of the President now 
 would be kept intact. That is, the President is required to transmit to 
 Congress the first update of his January budget request on April 10. In 
 this case, he would be required to provide an update on his total regulatory 
 budget request. The role of the RRG would be essential in this function 
 (similar to the current economic policy process for the update of the 
 regular budget) . What we have provided is a mirror image of the formulation 
 stage of the budget process. However, one other issue needs to be addressed. 
 This is the issue of the role of.-the normal mechanism for issuing regulations 
 
 There may be a need to change the appropriation committee structure 
 slightly to accommodate this process. However, for the most part, this 
 should not present a problem. 
 
B-30 
 
 via the Federal Register and the public comment that often follows. While 
 this is not the place to detail all of the implementation steps, it should 
 be mentioned that the regulatory budget system should be sufficiently dynamic 
 to accommodate changes. Furthermore, the Federal Register process entails a 
 much more detailed regulatory process than is envisioned here. Finally, the 
 role of the RRG will be important in assuring that the regulatory process as 
 implemented via the Federal Register — public comment path is coordinated 
 with the constraints imposed via the regulatory budget process. In the final 
 analysis, the regulatory budget is designed to balance the current system 
 procedures just as the current budget process is designed to balance indi- 
 vidual interests and groups with larger and more diverse interests and policy 
 requirements . 
 
 3 . The inclusion of the regulatory budget into the 
 traditional budget cycle : execution 
 
 The execution stage of the regulatory budget process involves 
 verification in two related respects: (1) that the regulatory steps consis- 
 tent with the levels enacted in the appropriation process have been taken; 
 and (2) that the cost estimates provided have been relatively accurate. 
 Thus , each affected agency would be required to list the regulatory actions 
 in a given year (probably in aggregated fashion) and provide dollar estimates 
 of obligations or regulatory authority involved. These lists might be sent 
 either to the Office of Management and Budget or the RRG or both. This 
 provides verification of actions (and government costs) more than verification 
 of private sector cost estimates because the list can be developed before the 
 end of the relevant fiscal year. 
 
 The verification of private sector costs — unlike obligations — most likely 
 cannot be done until well after the end of the fiscal year is completed. In 
 addition, it can involve more complicated procedures. The concept of private 
 sector costs is incremental. Data is not "collected" on these private sector 
 
 if; 
 
 impacts like it is on obligations. ° However, there are ways in several areas 
 that "verification" procedures can be adopted. 
 
 However these verification procedures are derived, they play a critical 
 role in the execution process, and the latter is an important element in 
 subsequent budget cycles . For example , let us assume that the regulatory 
 actions of a given program or agency are "shown" to have been considerably 
 higher than originally (or subsequently) estimated. The "actuals" will be 
 incorporated into baseline estimates for the following year's budget, and, 
 if "ceilings" come in requiring reductions, regulatory changes would have 
 to be made. In theory, the system could operate symmetrically, so that if 
 the reverse were true regulatory actions could be taken to increase costs. 
 Whether in fact it would operate this way is problematic. 
 
 Obligations could, at times, provide inaccurate public sector cost 
 estimates if faulty procedures are used to internally allocate between 
 regulatory and nonregulatory activities . 
 
B-31 
 
 III . Budget Presentation 
 
 While section II dealt with the process and organizational structure 
 involved in the regulatory budget system, section III focuses upon more 
 detailed aspects that would bring the regulatory budget concept closer to 
 reality. Specifically, this section provides some illustrations of budget 
 tables, discusses cost concepts that might be applied, and briefly mentions 
 some candidate programs for inclusion. 
 
 A. Budget tables 
 
 There are a number of different budget table concepts that we will 
 illustrate as applicable in this section. It is important that the structure 
 of the regulatory budget presentation differs as little as possible from the 
 regular budget presentations. It is also our assumption that the regulatory 
 budget will be fully integrated with the regular budget documents — that a 
 separate book or set of books will not be the route of presentation. 
 
 The heart of the budget accounting system is contained in the budget 
 appendix. It is referred to as the Program Financing (P&F) table. It 
 provides a detailed accounting of the obligations (or liabilities) to be 
 incurred by activity level within the account. It also contains — in a 
 beginning paragraph — the applicable appropriation language consistent with 
 the budget authority request needed to finance the proposed set of activities. 
 
 The structure of the budget accounting tables in the regulatory budget 
 presentation should be broken down according to the following format. There 
 would be a P&F presentation of the regulating agency. Each distinct program 
 within the regulating agency would have its own set of accounts : one account 
 for government costs and one special account for private sector costs. The 
 government cost account would be broken down according to existing regulations 
 and new regulations. The non-government account would also be subdivided in 
 the same manner. Table 1 presents a hypothetical government cost account for 
 a "Mine Safety Program" within a regulating agency. While the numbers shown 
 in Table 1 are hypothetical, the relative distributions are taken from an 
 actual budget account for a regulating agency. This is an assumed request 
 for the 1980 budget. Normally, there are at least three years displayed: 
 the budget year (1980) , the current year (1979) , and the previous year. 
 Thus, there is one 'actual 1 column, and two 'estimate* columns. Note that 
 for the activities listed under "new regulations" the 1978 and 1979 columns 
 are blank. The assumption made in this example is that obligations are not 
 incurred for new regulations until the budget year. 8 Most of those costs 
 
 17 
 
 ■'■'The P&F table contains the method by which obligations will be financed 
 (usually via budget authority) and the anticipated level of outlays, or 
 liquidated obligations . 
 
 18 
 
 Alternatively, one could argue that developmental and related costs 
 
 would be incurred prior to the budget year so that operational costs are a 
 
 higher percentage of total costs in the budget year. Nevertheless, it is 
 
 easier to assume that any activity regarding new regulations begins in the 
 
 budget year. 
 
B-32 
 
 Table 1 
 
 HYPOTHETICAL GOVERNMENT COST ACCOUNT 
 FOR A MINE SAFETY PROGRAM 
 (Appropriations Language) 
 
 Program and Financing (Thousands of Dollars) 
 
 Identification Code 14-2356-0-1-35 3 1978 1979 1980 
 
 Program By Activities Actual Est. Est. 
 
 A. E xisting Regulations 
 
 1. Safety and health standards 10,500 11,000 11,200 
 
 2 . Comp liance 
 
 a. Federal inspections 30,300 30,600 22,835 
 
 b. State programs 21,200 23,750 24,190 
 
 3. Education and information 3,000 3,000 3,200 
 
 4. Safety and health statistics-,.. 3,900 4,000 4,100 
 
 5. Administration »•• 2,100 2,200 2,600 
 
 6. Litigation 1,200 3,000 3,200 
 
 SubTotal 72,200 77,550 71,325 
 
 B . New Regulations 
 
 1. Safety and health standards -- -- 2,550 
 
 2 . Compliance 
 
 a. Federal inspections. ........ -~ -- 3,000 
 
 b. State programs -*- -- 575 
 
 3. Education and information -- -- 600 
 
 4. Safety and health statistics.... -- -*~ 250 
 
 5. Administration- ...... , ........ , . — -- 300 
 
 6. Litigation . ,..,..,.,,. -- -- -- 
 
 7. Program Development ........ , .. . . -- 2,000 
 
 SubTotal. ....... 9,275 
 
 10.00 Total Obligations,., ,.,, 72,200 77,550 80,600 
 
 Financing 
 
 21,00 Unobligated balance -5,300 -.7,500 -«- 
 
 available, start of period 
 
 24.00 Unobligated balance 7,500 — - 
 
 available, end of period _ 
 
 Budget Authority 74,400 70,050 80,600 
 
B-33 
 
 may not necessarily be operational , but may be developmental and reflect 
 general start-up activities. We have not filled in the appropriations 
 language paragraph. However, this is standard language describing the 
 length of availability and the conditions under which authority to incur 
 obligations is maintained. Table 2 — the Object classification Table — 
 takes the total obligation line in Table 1 (line 10.00) and breaks it down 
 in terms of the kinds of obligations that are incurred. Since this government 
 account is highly "salaries and expenses" intensive, in-house costs comprise 
 an overwhelming percentage of total obligations. The Object Classification 
 Table could be further subdivided on the basis of the existing/new regula- 
 tions breakdown provided in Table 1. Other than that division, there are 
 only minor steps required to implement the government cost component of the 
 regulatory budget. 
 
 What would represent a dramatic departure from the traditional budget 
 is a special P&F Table on Private Sector Costs. This is presented in Table 
 3. The latter refers to the same activity, mine safety regulations. We have 
 provided illustrative "Regulatory Authority" language that refers to private 
 sector costs. There are several points that should be underscored in this 
 example. First, the concept of cost here is similar to the accounting concept 
 of obligations in the private sector. That is, if firms incur liabilities 
 in the private sector on account of government regulations, the level of 
 those incurred liabilities in a particular year is the information presented 
 in Table 3. Second, as with Table 1, the 1978 and 1979 columns are blank 
 with respect to the "new regulations" categories. Third, all of the activities 
 presented in Table 1 are not replicated in Table 3 because several activities 
 are unique to the government, e.g., education, or the collection of statistics. 
 Fourth, there is no financing component to the "P&F" table. The 'costs' imposed 
 are financed from private sector sources. 20 The fifth and final point is that 
 while the numbers are hypothetical, they are realistic in that the costs 
 imposed upon the private sector, under normal conditions, are several times 
 the government costs that are incurred in operating regulatory activities . 
 Whether the costs imposed upon the private sector are ten or twenty times the 
 level of government costs is an empirical question. 
 
 The next table, which also reflects a dramatic departure from the 
 traditional budget presentation, is the counterpart of the Object Classifi- 
 cation Table. Table 4 provides an illustration of the kind of information 
 that would be presented in this format. The private sector cost impacts are 
 broken down by sector of the economy and by type of cost, i.e., capital costs, 
 
 19 
 
 These steps would be similar to the OMB "Circular/Bulletin" process 
 
 for incorporating changes in budget detail or presentation. 
 
 •''-'It could be maintained that for completeness a financing table 
 should be included, particularly in cases where regulatory cost effects 
 would be financed by the government through the regular appropriation 
 process. 
 
B-34 
 
 Tqble 2 
 
 OBJECT CLASSIFICATION: MINE SAFETY PROGRAM* 
 
 Object Classification (Thousands of Dollars) 
 
 Identification Code 14-2356^0nl~553 1978 
 
 Personnel Compensation Actual 
 
 11.1 Permanent Positions., ,,.,,., 19,300 
 
 11.3 Positions Other Than Permanent,.,,.,,. 525 
 
 11.5 Other Personnel Compensation, ,.,,.,,,, 200 
 
 Total Personnel Compensation,,..,, 20,025 
 
 12.1 Personnel Benefits: Civilian.,..,..,. 2,750 
 21.0 Travel and Transportation of persons., 2,925 
 
 23.2 Rent, Communications and Utilities,,., 3,100 
 24,0 Printing and Reproduction...,,,.,,..,. 600 
 
 25.0 Other Services.,..,.., ,...,..,. 16,675 
 
 26.0 Supplies and Material.,..,..,.,,,.,.., 625 
 
 31.0 Equipment.,,,,,,, ,, , ,,, 3,200 
 
 41.0 Grants, Subsidies and Contributions.,. 22,300 
 
 99.0 Total Obligations 72,200 77,550 80,600 
 
 1979 
 
 1980 
 
 Est. 
 
 Est. 
 
 24,000 
 
 25,000 
 
 210 
 
 200 
 
 150 
 
 150 
 
 24,360 
 
 25,350 
 
 2,840 
 
 2,900 
 
 3,600 
 
 3,800 
 
 3,500 
 
 3,900 
 
 1,200 
 
 1,500 
 
 16,625 
 
 16,550 
 
 925 
 
 1,200 
 
 1,500 
 
 1,500 
 
 23,000 
 
 23,900 
 
 * Hypothetical. 
 
B-35 
 
 Table 3 
 
 PRIVATE SECTOR COSTS OF MINE SAFETY REGULATIONS* 
 
 (Regulatory Authority Language: For necessary private sector 
 adjustments to mine safety regulations, no more than $1.2 
 
 billion in private sector costs, of which $ 900 million for 
 
 existing regulations, and $ 3 00 million for new regulations.) 
 
 Private Sector Costs (Thousands of Dollars) 
 
 Identification Code 14-23 56-0-1-553 1978 1979 1980 
 
 Actual Est. Est. 
 Program By Activities 
 
 A. Existing Regulations 
 
 1. Safety and Health 
 
 Standards 425,000 475,000 510,000 
 
 2. Compliance 275,000 310,000 320,000 
 
 3. Information Requirements •- • 50,000 52,000 52,000 
 
 4. Other 15,000 15,000 18,000 
 
 SubTotal 765,000 852,000 900,000 
 
 B . New Regulations 
 
 1. Safety and Health 
 
 Standards -- -- 200,000 
 
 2. Compliance -- -- 50,000 
 
 3. Information Requirements... — — 10,000 
 
 4. Other -- -- 40,000 
 
 SubTotal -- -- 300,000 
 
 Total Costs 765,000 852,000 1,200,000 
 
 * Hypothetical . 
 
B-36 
 
 Table 4 
 
 PRIVATE SECTOR COSTS OF MINE SAFETY REGULATIONS 
 BY OBJECT CLASSIFICATION* 
 
 Object Classification (Thousands of Dollars) 
 
 Identification Code 14-23 56-0-1-553 1978 1979 1980 
 
 Actual Est. Est. 
 Coal Industry 
 
 Capital Costs 
 
 Plant and Equipment 520,000 550,000 675,000 
 
 Non-fixed Capital 45,000 75,000 83,000 
 
 Material Costs 10,000 10,000 20,000 
 
 Labor Costs 40,000 60,000 115,000 
 
 SubTotal 615,000 695,000 893,000 
 
 Steel Industry 
 
 Capital Costs 
 
 Plant and Equipment 110,000 120,000 160,000 
 
 Non-fixed Capital 5,000 10,000 40,000 
 
 Labor Costs 2,000 4,000 10,000 
 
 SubTotal 117,000 134,000 210,000 
 
 Other Sectoral Costs 33,000 23,000 97,000 
 
 Total Costs 765,000 852,000 1,200,000 
 
 * Hypothetical. 
 
B-37 
 
 labor costs. This presents an oversimplified breakdown, but it is simply 
 designed to show what the function of an object classification table would 
 be. Again, depending upon information available, the object classification 
 could be subdivided further between existing and new regulations. 
 
 Another element of the regulatory budget which is not new is a justi- 
 fication table that describes the benefits of the regulatory activities. 
 Often those benefits cannot be assessed in dollar terms. However, there are 
 many government programs that use measures of program "impacts" in lieu of 
 benefits. In the example used here, while the dollar benefits of mine safety 
 would be desirable , it is more likely that other kinds of information would 
 be employed. This is presented in Table 5. Some of the illustrative data 
 presented are closer to input measures, i.e., number of inspections. Other 
 measures may not provide information of end results. That is, the number of 
 mine improvements is not the ultimate measure of program effectiveness, but 
 the reduction of accidents and other problems resulting from these improve- 
 ments is. Thus, it is likely that the output from several of these programs 
 will be difficult to measure , let alone providing a dollar estimate of the 
 value of the benefits. 
 
 To this point, we have provided tabular displays of government costs, 
 non-government costs, and benefit/program level measures. These would all 
 be presented in that portion of the Budget Appendix dealing with the activ- 
 ities of the agency that has responsibility for mine safety regulations . 
 To the extent that these regulations affect the operations of other government 
 agencies — say, Interior Department activities — then special information should 
 be displayed under those accounts. This would require either a separate 
 Program & Financing Table or a separate section within a P&F Table . Table 
 6 provides an illustration of such a table where the regulatory costs imposed 
 are treated as a separate account. It is important to remember that the 
 costs reflected in this set of accounts are entirely government costs. An 
 accompanying object classification table could also be provided. 
 
 All of the relevant information has now been displayed. Logically, if 
 we wanted to pull together the elements of the regulatory budget it would 
 consist of the sum of: 
 
 (1) All obligations from regulating agencies 
 
 (2) All costs from private sector sources (listed 
 with the regulating agency accounts) 
 
 (3) All "regulatory" obligations from other 
 accounts 
 
 There is one other additional piece of information required for a 
 complete regulatory budget request. It is that the budget authority 
 requests consistent with new legislation are usually provided in a separate 
 
 21 
 
 As mentioned previously, this is not a unique problem and should not 
 
 be translated into the false proposition that, correspondingly, the regulatory 
 
 budget is infeasible. 
 
B-38 
 
 Table 5 
 
 COAL MINE SAFETY REGULATION PROGRAM EFFECTS* 
 
 Number of inspections 
 Number of mine improvements 
 Number of safety procedures 
 
 instituted 
 Number of mines where safety 
 
 rated "excellent" 
 
 * Hypothetical. 
 
 1978 
 
 1979 
 
 1980 
 
 Actual 
 
 Est. 
 
 Est. 
 
 1,150 
 
 1,200 
 
 1,210 
 
 4,350 
 
 4,500 
 
 5,000 
 
 700 
 
 710 
 
 850 
 
 350 
 
 400 
 
 475 
 
B-39 
 
 Table 6 
 
 COSTS IMPOSED BY MINE SAFETY REQUIREMENTS ON OTHER PROGRAM ACTIVITIES* 
 (Appropriation Language) 
 
 Program and Financing (Thousands of Dollars) 
 
 Identification Code 14-4 066-0-3-3 01 1978 1979 1980 
 
 Actual Est. Est. 
 Program By Activities 
 
 1. Special Coal Storage Program 1,502 1,100 1,704 
 
 2. Helium Storage Program 523 530 530 
 
 3. Power Administration Program 2,304 2,400 2,450 
 
 4. Metallurgic Research Program 251 750 251 
 
 5. Minimal Land Assessment 3,025 3,504 3,600 
 
 6. Grants to state and local 
 
 governments 1,000 1,000 1,000 
 
 10.00 Total Obligations 8,605 9,284 9,535 
 
 Financ ing 
 
 21.00 Unobligated Balance available, -400 -1,500 
 
 start of period 
 24.00 Unobligated balance available, 1,500 
 
 end of period 
 
 Budget Authority 9,705 7,784 9,535 
 
 * Hypothetical. 
 
B-40 
 
 section of the Budget Appendix. If regulatory changes are proposed that 
 require changes in authorizing legislation, 22 then a separate P&F Table 
 is needed. Tables 7 and 8 display the budget authority and regulatory 
 authority changes consistent with new legislative proposals. 
 
 All of the estimates, including legislative changes contained in the 
 Budget Appendix, could be aggregated and presented in one chapter in the 
 regular budget document. The method by which this could be accomplished 
 derives from the use of the identification codes. Special identifiers could 
 easily be added for obligations (or budget authority in the budget year) and 
 for regulatory authority to provide one summary table in a special section. 
 Table 9 adds up all relevant costs for mine safety regulation. Table 10 
 provides a skeleton format of the sort of summary that could be presented 
 for all costs. The table itself would be several pages long. The breakdowns 
 would be based upon government costs and private sector costs . The private 
 sector would be divided according to regulating agency. So, for example, 
 the costs imposed by a given agency would be identified as well as the 
 sectors upon which those costs were imposed. This allows a capsule overview 
 for the individual not interested in account details contained in the Budget 
 Appendix . 
 
 There is one other section in the main budget document in which a 
 discussion of regulatory activities could be contained. There is already 
 some discussion of regulatory activities in the "Federal Program by Function" 
 section. What we propose is that each functional chapter contain relevant 
 figures about government and non-government costs as well as effects or 
 benefits. Just as the identifier codes would be used to construct aggregate 
 estimates in a summary table , so would the identifier codes be used to break 
 out regulatory costs by function. This does not require any large change in 
 current procedures, since those codes are used to aggregate accounts into the 
 functional breakdowns now displayed in the budget. 
 
 In conclusion, measurement problems aside, the regulatory budget concept 
 does not involve other than small incremental steps for inclusion in the 
 regular budget documents . 
 
 B. Cost definitions 
 
 There are a number of complicated cost issues that have to be decided 
 upon before implementation of a regulatory budget can begin. Our discussion 
 in this section will center upon a number of costs issues that are definitional 
 in nature . 
 
 The issue is actually a bit more complicated than this. The regulatory 
 budget process itself would probably require enabling legislation that would 
 subject all prior authority to this process. It is possible that legislative 
 changes would not, under many circumstances, be necessary. 
 
B-41 
 
 Table 7 
 
 MINE SAFETY BUDGET AUTHORITY* 
 
 (Proposed for later transmittal, proposed legislation) 
 
 Program and Financing (Thousands of Dollars) 
 
 Identification Code 14-2356-0-1-353 1978 1979 
 
 Actual Est. 
 Program By Activities : 
 
 Safety Standards — — 
 
 Compliance — — 
 
 10.00 Total Obligations 
 
 Financing 
 40.00 Budget Authority (proposed for 
 
 later transmittal) -13,350 
 
 * Hypothetical. 
 
 1980 
 
 Est. 
 
 - 3, 
 
 ,250 
 
 -10, 
 
 100 
 
 -13, 
 
 350 
 
B-42 
 
 Table 8 
 
 MINE SAFETY REGULATORY AUTHORITY* 
 
 Regulatory Authority: Proposed for later 
 transmittal, proposed legislation 
 
 Identification Code 14-2356-0-1-353 
 
 Activities 
 
 (Thousands of Dollars) 
 1978 
 Actual 
 
 Safety standards 
 Compliance 
 
 1979 
 
 1980 
 
 Est. 
 
 Est. 
 
 — 
 
 - 60,200 
 
 — 
 
 -25,300 
 
 -85,500 
 
 * Hypothetical. 
 
B-43 
 
 Table 9 
 
 AGGREGATE MINE SAFETY COSTS* 
 (Millions of Dollars) 
 
 1978 
 Actual 
 
 1979 
 
 Est. 
 
 1980 
 
 Est. 
 
 Government Costs 
 
 Mine Safety Regulatory Program 72.2 77.6 67.2** 
 
 Department X*** 7 . 6 8. 3 8. 5 
 
 79.8 85.9 75.7 
 
 Private Sector Costs 765.0 852.0 1114.5** 
 
 TOTAL 844.8 937.9 1190.2 
 
 * Hypothetical. 
 
 ** Includes the effect of proposed legislation. 
 
 *** Excludes grants to state and local governments (1 million 
 in each of the three years cited) in order to avoid 
 doublecounting . When Federal government obligations alone 
 are being analyzed, these amounts can be included for 
 budgeting purposes. However, they must be excluded when 
 aggregate (i.e., government and private sector) costs are 
 shown . 
 
B-44 
 
 Table 10 
 
 FORMAT FOR SUMMARY OF COSTS OF MINE SAFETY REGULATION* 
 
 Government Costs 
 
 Agency A 
 Agency B 
 Agency C 
 Agency D 
 Agency E 
 Agency F 
 Agency G 
 
 (Millions of Dollars) 
 
 Total 
 
 1978 
 
 1979 
 
 1980 
 
 Actual** 
 
 Est.** 
 
 Est!' 
 
 50 
 
 53 
 
 42 
 
 60 
 
 61 
 
 75 
 
 23 
 
 24 
 
 27 
 
 35 
 
 37 
 
 80 
 
 75 
 
 75 
 
 70 
 
 15 
 
 15 
 
 31 
 
 42 
 
 42 
 
 75 
 
 300 
 
 307 
 
 400 
 
 Private Sector Costs 
 
 **** 
 
 Agency A 
 Sector 1 
 Sector 2 
 
 Agency B 
 Sector 1 
 Sector 2 
 
 Agency G 
 Sector 1 
 Sector 2 
 
 Total 
 Grand Total 
 
 * Hypothetical . 
 
 ** Obligations. 
 
 *** Budget Authority, 
 
 r*** Regulatory Authority. 
 
 6,250 
 6,550 
 
 7,500 
 7,807 
 
 8,200 
 8,600 
 
B-45 
 
 1 . Government costs 
 
 We have specified that costs and obligations are about the same. 
 It is also true that under many circumstances, budget authority (as a mechanism 
 for financing costs) is identical to obligations. Whichever of these concepts 
 is employed, there are nevertheless a number of issues that have to be 
 resolved. These problems include: 
 
 • The treatment of grants and subsidies 
 
 • Joint costs 
 
 • Discounted v. current costs 
 
 • Life cycle costs 
 
 • Indirect government costs 
 
 Grants and subsidies 
 
 There are several circumstances under which a regulatory agency will have 
 a large percentage of its incurred obligations representing grants and subsidies 
 From an economic perspective , these are not costs , but transfer payments , and 
 should be treated as such. That would not represent a problem if the level of 
 regulatory activity was treated as a "flow through," so that all government 
 obligations would be treated equally. However, if the grants and subsidies are 
 spent by private sector agents and are counted again, then we have overstated 
 the "costs" of regulatory activity. While the treatment of grants and subsidies 
 on an equal footing with economic costs may cause no more concern than it does 
 with regard to regular budget expenditures , some efforts must be made to reduce 
 the probabilities of doublecounting . Grants and subsidies may also represent 
 an element of the obligations of a nonregulatory agency for the compliance 
 costs imposed upon private sector entities by a regulating agency. All of the 
 caveats about doublecounting are relevant. 
 
 Joint costs 
 
 Joint costs can become an issue when the "regulatory activity" is 
 associated with other activities in fixed proportions. This does not auto- 
 matically mean that the cost of regulation is zero. It does mean that the 
 assignment of cost is not trivial^ and any proportional technique would 
 provide biased estimates. Hopefully, the number of such cases will be 
 minimal. At any rate, a separate analysis should be undertaken to determine 
 the magnitude of this problem. 
 
 "For a lucid exposition of the general joint cost problem, see 
 Alfred E. Kahn, The Economics of Regulation, Vol. I. 
 
B-46 
 
 Discounted v. current costs, life cycle costs 
 
 These two issues, while invariably related, are distinct. The issue of 
 life cycle costs is a loose reference to the allocation to regulatory activity 
 of all relevant costs. 24 These would include development, administration, 
 litigation and other associated costs. The discounting problem deals with the 
 question of whether flows should be converted to stocks for budgeting purposes 
 and is relevant to both government and private sector costs. However, the 
 question arises : if the life cycle costs of a given regulatory activity are 
 to be measured properly, shouldn't costs be discounted? There is no question 
 but that discounting would be called for if all of the relevant costs of a 
 regulatory program over its life were reflected in the regulatory budget in 
 a single year . However, even if the theoretical problems associated with a 
 proper discount rate were overcome, it does not make sense to treat these 
 costs — for budget presentation purposes — differently from other areas of the 
 budget. For analytical purposes discounting should, of course, be employed. 
 
 The use of life cycle costs can be applied in a non-discounted context 
 by comparing different regulatory programs in different stages of their life 
 cycles. Thus, one could gain insight about life cycle costs by looking across 
 similar programs that are in different "stages." In conclusion, life cycle 
 costs should not be confused with the issue of discounted versus current 
 costs. They are separate and distinct. 
 
 Indirect government costs 
 
 The bulk of indirect government costs falls in two categories: (1) the 
 costs imposed by the regulating agency upon government-run activities; and 
 (2) the "costs" imposed upon ncnregulating agencies in the form of payments 
 to third parties in the private sector resulting from regulatory requirements. 
 Both cost categories may be significant; both have been discussed elsewhere 
 in this paper. One could argue that there are other, more dynamic indirect 
 costs that follow from regulation, such as constraints imposed upon the policy 
 formulation process, and second-order administrative inefficiencies. However, 
 the two major categories cited can most easily be measured by the current 
 accounting system. Other cost elements will probably not be taken into account 
 or their impact measured until after some experience has been gained with the 
 regulatory budget process . 
 
 2 . Private sector costs 
 
 This is not the appropriate place to review the exhaustive 
 literature on what constitutes cost. The consumers' surplus versus "dead- 
 weight triangle" arguments have been waged by many economists over the 
 
 24 While the general thrust of the life cycle cost concept is clear, its 
 precise definition may be elusive. When development leads formulation of 
 regulations by several years, the allocation of costs becomes extremely 
 difficult. Another problem is defining precisely when development begins. 
 
B-47 
 
 years. Once theoretical differences are noted, it may be best to ensure 
 consistency among different agencies. Adjustments can be made in the 
 aggregate, but it does not make sense to allow differences in cost concepts, 
 particularly when those costs are to be aggregated. 
 
 From a practical viewpoint it may not be worthwhile to become embroiled 
 in this conceptual controversy. It may be better to view costs in a manner 
 similar to the perceived relationship of government expenditures (inclusive 
 of transfers) to the Gross National Product. That is, if the policy interest 
 of regulatory effects is the private flow of funds diverted to regulatory 
 activities, then merely multiplying increased cost by quantity across affected 
 sectors may be sufficient. (Since private sector costs include effects on 
 state and local governments, the framework here would be "expenditures" from 
 Federal Regulatory activity as a percentage of GNP . ) 
 
 C. Regulatory programs to be included 
 
 There are many non -substantive considerations that may govern the list 
 of programs t6 be included in the regulatory budget process. In theory, 
 there is no reason to exclude any regulatory activity. However, there appears 
 to be a significant amount of current interest in environmental, safety and 
 health regulations . Among these areas , the most obvious candidates are : the 
 Food and Drug Administration; the Occupational, Safety and Health Administration; 
 and the Environmental Protection Agency. There are several pockets of similar 
 activities spread throughout the government . 
 
 There are four logical groupings of regulatory activities. The first, 
 as mentioned above, is in the safety, health, and environmental areas. The 
 second grouping includes the traditional economic regulatory activities under- 
 taken by the independent regulatory agencies, i.e., the Securities and 
 Exchange Commission, the Federal Communications Commission, the Interstate 
 Commerce Commission, the Federal Trade Commission, and so on. The third group 
 would involve activities that are non-discretionary in the sense that regu- 
 lations are mandated by Congress because legislation does not (or cannot) spell 
 out all relevant criteria governing program operations, grant eligibility, etc. 
 The fourth set of activities consists of a miscellaneous listing that may 
 incorporate elements of the first three in combination with nonregulatory 
 policy and program objectives. 
 
 25 
 
 The present authors favor the use of consumers ' surplus when cost 
 
 functions are shifted upwards. When that is not the case, then the use of 
 
 the deadweight triangle, we believe, is appropriate. Of course, the issue 
 
 of consumers ' surplus versus deadweight triangle measures of welfare loss 
 
 assumes away the problem of measurement in a general equilibrium context. 
 
 For significant regulatory impacts, the latter may make irrelevant the 
 
 question of which partial equilibrium measure is appropriate. 
 
B-48 
 
 Which elements are included in the regulatory process is obviously a 
 policy decision. There are areas that should not be included under any 
 circumstances , and there are other activities that fall into a gray area 
 requiring a high degree of judgment. Over time, definitions and criteria 
 will have to be developed. However, one important premise when looking 
 at a list of candidate activities is what set of agencies can easily be 
 folded in without significant disruption. Put differently, the best way 
 to ensure that the regulatory budget never gets off the ground is to 
 (initially) attempt to include all regulatory activity. 
 
B-49 
 
 IV. Information Requirements 
 
 A. Use of regulatory cost information 
 
 In order to implement the regulatory budget, information must be collected 
 on government costs and on private sector costs. This information must support 
 several activities : 
 
 • The estimation of cost impacts of proposed regulations; 
 
 • The comparison of actual costs with estimated costs by 
 specific classes of regulations, once these regulations 
 are put into force; 
 
 • The maintenance of a baseline measurement of cost impacts 
 of all existing regulations; 
 
 • The study of industry and macroeconomic impacts of 
 existing and proposed regulations. 
 
 The need to estimate the cost of proposed regulations should permit a 
 comparison of costs and benefits for any specific proposed regulatory action. 
 This determination facilitates the examination of alternate forms of regu- 
 lation which may achieve the same benefits at less cost and the consideration 
 of whether more or less regulation than originally proposed may be appropriate 
 in light of the relationship of benefits to costs. 
 
 The comparison of actual costs with estimated costs will provide useful 
 feedback on the accuracy and validity of estimation techniques and permit 
 improvement in these techniques over time. Equally important, if actual 
 costs differ significantly from original estimates, the information will 
 assist in deciding whether to alter the regulatory program itself to bring 
 the relationship of costs and benefits more closely in line with that originally 
 contemplated. This comparison, then, should encourage the evaluation of ongoing 
 regulatory programs and identify those high cost areas where evaluation tech- 
 niques may be most usefully applied. 
 
 The maintenance of a baseline measure on total costs of existing regula- 
 tion conceptually is nothing more than the summation of the actual costs 
 discussed in the preceding paragraph across all regulatory programs. While 
 the analysis of the costs of proposed regulations can be accomplished on an 
 incremental basis to some degree , total regulatory costs within economic 
 sector must be developed to permit a complete examination of the relevant 
 economic variables before final regulatory decisions can be made. This 
 approach will also aid in identifying where the aggregate impact of regula- 
 tions required or under consideration by two or more regulatory agencies 
 might be too great a burden for certain industries . Measurement and reporting 
 of baseline costs will also encourage tradeoffs between existing and proposed 
 regulations , so that it may be possible to keep cost impacts within reasonable 
 limits by eliminating or reducing certain existing regulations before imposing 
 additional regulatory requirements. 
 
B-50 
 
 Regulatory costs must be collected in a manner that will permit examination 
 of the full economic cost on both an industry and a macroeconomic basis in terms 
 of all relevant economic variables. These variables would include prices, wages, 
 unemployment, investment, international trade and similar items. 
 
 Government costs 
 
 There are three types of government regulatory costs that should be 
 collected. First, there is the direct government cost of developing, adminis- 
 tering and enforcing regulations. Second, there is the cost impact of regula- 
 tions on other Federal operations, such as the implementation of OSHA require- 
 ments at naval shipyards. Third, programs that make regulation related 
 payments to third parties must be measured. For example, grants for publicly- 
 owned wastewater treatment works must be reported by program. Care must be 
 taken to avoid doublecounting by distinguishing between the entity that incurs 
 added costs and the government unit that provides financing. However, the 
 administration of these financing programs may be included as added costs of 
 regulation . 
 
 Direct government costs of developing, administering and enforcing 
 regulations can be determined with only minor changes in Federal budget 
 and accounting systems. Two steps must be taken to accomplish this. First, 
 a discrete list must be developed of those agencies or activities that are 
 principally regulatory. The regulatory review group should develop the 
 definition of a regulatory agency or activity for this purpose and publish 
 a list, which can be revised periodically. Entities on this list should 
 normally not be below the account level in the regular budget. Second, 
 criteria must be specified governing separate budgeting for those activities 
 where the regulatory role is a relatively minor portion of the total. In 
 this case, account restructuring may be necessary but should be kept to a 
 minimum . 
 
 The budgeting process described in OMB Circular A-ll should be used to 
 budget and account for regulatory costs. Circular A-ll contains all of the 
 detailed instructions and documentation forms that must be completed by 
 agencies for their submissions of budget requests. All special accounting 
 breakdowns and accompanying definitions are provided for in this Circular. 
 Within this A-ll framework, major regulatory agencies will be asked for 
 expanded information on costs by regulatory program. Any regulatory activ- 
 ities within a predominantly nonregulatory agency will also be identified. 
 For this latter case, the agency or OMB could determine whether to form a 
 separate account or to develop a separate code for the activity without 
 having to restructure the account. For example, if out of a $1 billion 
 program (account) , only $10 million represents regulatory activity, then 
 an additional table with the normal account identifiers could be provided as 
 part of the normal A-ll process. This table could indicate the amount from 
 that account representing regulatory activity. Through the use of the A-ll 
 framework and supplementary tables, the budgeting and reporting requirements 
 for direct government costs for development, administration and enforcement 
 should be readily accommodated. 
 
B-51 
 
 The cost impact of regulations on the Federal government's own operations 
 must be established. This would be accomplished almost exclusively by supple- 
 mental data on investment and operating costs, classified by regulatory program, 
 for each account. Many of these data could be generated directly by expanded 
 accounting systems, although some cases would involve decisions on the alloca- 
 tion of joint costs by program administrators. 
 
 Federal subsidies and grants provided to other levels of government and 
 the private sector should also be classified as to whether all or any portion 
 of the funds are used to meet regulatory requirements. These subsidies and 
 grants should not be regarded as costs per se , but as a means of financing 
 costs incurred by other sectors. As such, they constitute a useful means of 
 verifying whether these costs are properly and consistently reported. While 
 some decisions will be required on joint costs, most of this financing could 
 be identified by regulatory category directly through agency accounting systems. 
 Where a Federal grant or subsidy program is used to finance or otherwise miti- 
 gate the cost impact of regulation, a pro rata share of the cost of administering 
 the program should be included as a direct Federal program cost and identified 
 separately through supplementary information submitted with the budget data 
 provided for the account. 
 
 The three categories of Federal regulatory costs can be collected without an 
 undue burden on agency accounting systems by simply utilizing the existing 
 A-ll process with an expanded account structure and some supplemental informa- 
 tion requirements. Further, the verification of these cost data can be done 
 through regular internal and external audits . The government costs should be 
 summarized by regulatory program and by agency in the Special Analyses volume 
 that is submitted with the budget. In addition to determining the added direct 
 Federal government costs and transfer payments due to regulation, it would also 
 be essential to estimate the total economic impact caused by these changes to 
 the Federal budget . This would include such variables as GNP , prices , wages , 
 interest rates, unemployment, productivity, etc., and could best be estimated 
 through the use of a macroeconometric model. 
 
 C. Private sector costs 
 
 The Federal government can readily alter the account structure used by its 
 own agencies to collect and report costs. However, the problem of achieving 
 the same end result with the private sector is much more complex, especially 
 since the government would not wish to increase existing regulatory burdens or 
 paperwork requirements to collect these costs. The information should include 
 incremental investment and operating costs, identified by regulation or 
 regulation type. 
 
 There are a number of ways in which information on the actual cost of 
 regulation could be collected. It should be emphasized that these approaches 
 to gathering data are not necessarily mutually exclusive , and may have to be 
 used in combination to meet information requirements . Before deciding on 
 whether any or all of these approaches are appropriate, further study needs 
 to be given to the intended use of the information and to the cost of collecting 
 it under each option. These options are discussed in the following paragraphs. 
 
B-52 
 
 1. Special studies . The predominant method of collecting actual 
 regulatory costs up to the present time has been the use of special studies. 
 The studies have typically been of a "one-time" nature and limited to one 
 or a few industries. Their value has been in the in-depth coverage that 
 could be given to a specific group of regulations within a given industrial 
 setting. This "case study" approach leads to a more complete understanding 
 of the impact of regulation on the private sector and may often be helpful 
 in the development of new insights regarding the government's regulatory 
 role. The principal limitations include inconsistent methodologies from 
 study to study, lack of comparability of data generated across several 
 studies, unwillingness of some industries to cooperate, short time value of 
 the results and high cost. These special studies will probably have utility 
 in fully explaining particular impacts of individual regulations. However, 
 this method could not be expanded in any practical or economical way to 
 provide a regularized system of reporting regulatory costs throughout the 
 economy . 
 
 2. Surveys . Regular government surveys could be conducted to 
 collect information on regulatory costs throughout the economy. Information 
 generated through surveys is used by many government programs for program 
 design, analysis and evaluation. Surveys are also a commonly used method of 
 developing -general use statistics. If the information were requested on a 
 regular basis, industry would be very likely to begin collecting the data in 
 a systematic way in anticipation of future surveys, although this would by 
 no means be uniform. The surveys could be conducted separately or combined 
 with existing requirements , such as the Annual Survey of Manufactures by 
 the Bureau of the Census. The surveys could aim for comprehensive coverage 
 or employ sampling techniques to estimate regulatory costs for the universe. 
 An approach that combines sampling with existing Federal surveys would appear 
 to be the most useful. Surveys would generally be a much less expensive method 
 than special studies to generate information across a broad spectrum of 
 industries. However, surveys still take considerable time and cost to develop, 
 test and administer. While the survey coverage would be more comprehensive, 
 
 it could not provide the same level of detail as the more narrowly focused 
 special study. On the other hand, survey information could be collected in 
 a consistent manner from all industries and could be updated regularly. If 
 the surveys were conducted by a neutral agency that has the confidence of the 
 private sector to keep proprietary data confidential , such as the Bureau of 
 the Census, then industry should be much more willing to cooperate in providing 
 high quality data. 
 
 3. Direct reporting . The private sector could be asked to report 
 regulatory costs on a regular basis through an information system established 
 by the government. This would be a massive undertaking, requiring many years 
 to bring to an operational state. It is probably the most costly of all the 
 options considered in this paper. To initiate a system of comprehensive 
 direct reporting, legislation would undoubtedly be required. Enactment of 
 this legislation would expand the Federal role in private sector operations 
 and would promote the growth of the bureaucracy by designating one or more 
 agencies to receive the reports. Not only would the government become involved 
 in establishing data definitions and reporting requirements, but the information 
 would require regular audit. A federally-imposed system of direct reporting 
 
B-53 
 
 would be distrusted by many of the private sector who would be concerned 
 that the information might be used for more than the original purpose. This 
 distrust would affect the quality of the data that are reported. Because this 
 option serves to expand government regulatory control through direct reporting, 
 it is probably politically infeasible to obtain the necessary legislation, even 
 if it were desirable. 
 
 4. Existing accounting systems . Existing reporting mechanisms in 
 the private sector could be used to collect regulatory costs either in place 
 of or together with special studies, surveys or expanded reporting systems. 
 One means to initiate this would be to have regulatory costs show as a separate 
 item on an expanded business operating statement. While this would only be 
 one line item on the operating statement, accounting systems would have to be 
 modified to generate the necessary information at lower levels of detail. One 
 means to initiate this change to financial accounting statements would be through 
 modification to the SEC regulations governing submission of the 10-K reports . 
 While this may be regarded as a drastic measure by some, there is no question 
 as to whether these costs are material. A second approach, although considerably 
 slower, would be to have a new accounting principle established by the Financial 
 Accounting Standards Board of the American Institute of Certified Public 
 Accountants. Either of these approaches would undoubtedly give rise, over 
 time, to criteria and standards for handling the many detailed accounting 
 issues that must be confronted, such as the treatment of joint costs. Another 
 means of obtaining regulatory costs through accounting systems, although much 
 less comprehensive , would be through a change in principles and standards 
 issued by the Uniform Cost Accounting Standards Board. While these standards 
 only apply to major government contractors, they would provide a very compre- 
 hensive sample which could then be extrapolated to all industries. Any of 
 these approaches would take five to ten years to implement fully and would be 
 costly. 
 
 Costs reported through special studies , surveys and direct reporting 
 would be difficult to verify. However, costs incorporated into financial 
 statements would be subject to audit and ceritification by an independent 
 CPA. Costs produced through the Uniform Cost Accounting Standards Board 
 would be subject to a review by government contract auditors. 
 
 As we recommended for direct Federal government regulatory costs, the 
 total economic impact for direct private sector incremental costs should be 
 calculated. This can be done through the use of macroeconomic and industrial 
 models. A macroeconomic model would provide information on GNP, prices, 
 wages, profits, unemployment, interest rates, government tax receipts, inter- 
 national trade, industrial production, interindustry impacts and similar 
 variables. An industrial model would provide more detail on how increased 
 regulatory costs would affect final product costs , the impact on prices , 
 profits, taxes, cash flow, investment, demand elasticities and some considera- 
 tion of substitution effects. 
 
B-54 
 
 With actual costs of regulations avilable through one of the reporting 
 techniques outlined above, it would be possible to perform counterf actual 
 simulations. Such simulations remove known regulatory costs and examine 
 what economic performance within an industry and/or for the total economy 
 would have been without the regulation in question. This can then be 
 compared to actual economic performance during the historical period to 
 measure the net economic impact. 
 
 The development of a systematic method to collect actual regulatory 
 costs would also be extremely valuable in estimating the costs of proposed 
 regulations. Preliminary cost estimates for proposed regulations could be 
 based on previous experience in similar situations, although these estimates 
 should, in most cases, be strengthened by other means. Engineering studies, 
 industry surveys and even the administrative hearings process for major 
 actions could be used to improve estimates . Once reliable direct cost 
 impacts were obtained by one or more of these methods , the estimates could 
 be used in macroeconomic and industrial models to forecast the full impact 
 of the proposed regulations on all economic variables for the total economy 
 and for the industrial sectors involved. 
 
 The collection of actual regulatory costs and the regular development 
 of cost estimates for proposed regulations would generate information that 
 could be assembled into a regulatory cost data bank. This data bank could 
 be maintained on a centralized basis by some designated government agency 
 for general use in regulatory cost analysis and estimation. As an initial 
 step toward this data bank, Robert Miki, Director of the Office of Regulatory 
 Economics and Policy at the Department of Commerce, has suggested that the 
 regulatory agenda requirement in Executive Order 12044, "Improving Government 
 Regulations," could be modified to provide broader coverage of regulations 
 and estimates of costs . This information could be assembled in a computer- 
 based "regulatory information system" from which data could be extracted to 
 meet some of the requirements for the regulatory budget. Since he is pursuing 
 the development of this concept as a separate task, it is not discussed any 
 further in this paper. 
 
 Table 11 contains a summary presentation of methods that could be used 
 to collect actual costs and to develop cost estimates in both the public and 
 private sectors. A reliable yet economical method of performing these functions 
 is needed for the implementation of the regulatory budget concept, since the 
 resulting decisionmaking can be no better than the information upon which it 
 is based. However, with regulatory programs responsible for an increasing 
 portion of public and private sector costs , it is essential that steps be 
 taken to collect these costs and have the tradeoffs between costs and regulatory 
 program benefits accomplished through the political process in an explicit, open 
 and accountable manner . 
 
B-55 
 
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ALTERNATIVES TO REGULATION; 
 POSSIBILITIES; EXPERIENCE; PROSPECTS 
 
 Prepared for: 
 
 U.S. DEPARTMENT OF COMMERCE 
 
 The Assistant Secretary for Policy 
 Office of Regulatory Economics and Policy 
 
 Prepared by: 
 
 ENERGY AND ENVIRONMENTAL ANALYSIS, INC. 
 
 1111 North 19th Street 
 Arlington, Virginia 22209 
 
 Purchase Order No. 8-36344 
 
 August 1978 
 
C-3 
 
 ALTERNATIVES TO REGULATION: 
 POSSIBILITIES: EXPERIENCE: PROSPECTS 
 
 Summary 
 
 How should government intervene? This is a survey of alternatives to 
 direct federal regulation in three hypothetical cases involving air 
 pollution, industrial hazards, and driver safety.* 
 
 There are many combinations of ways government can influence outcomes, 
 but these can be reduced to three broad categories: traditional regula- 
 tion, incentive or market-based approaches, and informational methods. 
 
 Among incentive approaches are taxes (user charges or surcharges) , 
 subsidies, and liability measures such as permissive private lawsuits, 
 compensation funds and insurance plans. In addition, there are licensing 
 devices such as the marketable permit. 
 
 Informational methods include disclosure, public education, warning 
 alerts, and jawboning with the implicit threat that if compliance is not 
 soon forthcoming, regulation or litigation may occur. 
 
 All of these approaches should be susceptible of analysis by the same 
 basic criteria: 
 
 Effectiveness (including enforceability) 
 
 Efficiency (costs vs. benefits) 
 
 Equity 
 
 Political Feasibility 
 
 When these criteria are used as in the three cases to be examined, the 
 merits or demerits of the alternative approaches become clearer, and 
 provide a basis for realistic adjustment of the control mechanisms. 
 
 I. Short-Term Nitrogen Dioxide Standard . High concentrations of N0 2 
 have been shown to affect health. Among other mandates, the Clean 
 Air Act of 1977 requires the EPA to determine whether it is necessary 
 to control NO2 and to study the use of economic incentives to air 
 pollution control. 
 
 * The discussion of nitrogen dioxide control draws heavily on unpub- 
 lished work performed for the Environmental Protection Agency (EPA) and 
 the Council on Environmental Quality (CEQ) . The findings represent the 
 view of the contractor and do not necessarily represent the viewpoint 
 of either the EPA or the CEQ. 
 
C-4 
 
 Rollback is the traditional regulatory approach for this form of 
 air pollution caused by fossil fuel combustion in both mobile and 
 stationary sources. Rollback is probably the most administratively 
 feasible but also the most difficult to enforce. When the cost of 
 control is large, sources have an incentive to use any tactic 
 available to delay compliance. Since all sources must comply with 
 a fixed control requirement regardless of their actual contribution, 
 the number of sources which must be controlled can be far greater 
 than actually required to achieve the ambient standard. Annual 
 control costs under rollback were estimated to be $254 million as 
 compared with $21 million under the least-cost solution. Political 
 resistance has grown with increasing public recognition that society 
 ultimately bears this unnecessary cost. 
 
 As an alternative s a uniform emission charge would set a charge rate 
 equal to the marginal cost of control of the highest cost individual 
 sources, inducing all sources to control emissions up to that point 
 where it is no longer profitable to do so. A variable charge rate 
 recognizes that sources have different marginal costs of control and 
 that the charge rate need not be applied uniformly to ensure attain- 
 ment. For either system, with charge rates applied to all emissions, 
 the source continues to pay a charge on its uncontrolled emissions 
 if the reduction in air polluting is less than 100 percent. 
 
 Incentive approaches such as the above tend to have greater infor- 
 mation requirements than direct regulatory approaches and conse- 
 quently are less administratively feasible. However, there are more 
 readily and effectively enforced . Sources under a charge system 
 find it in their economic interest to comply, thereby avoiding higher 
 total costs. The weakness in this approach is that in order to 
 implement it the enforcement authority must be able to monitor emis- 
 sions. For various reasons that is exceedingly difficult to do. 
 
 Emission charges have traditionally been supported by economists 
 as the most reasonable method for equalizing costs and benefits. 
 When unable to measure benefits, a second best condition in 
 favor of emission charges is that they can be used to minimize 
 costs for a given level of control. But costs for control of 
 "identical" sources can vary widely, depending on age of plant, 
 equipment costs, capital costs, ambient impact, etc. 
 
 Attempts to vary the charge rate until the standard is met are 
 countered by the argument that control technologies are lumpy invest- 
 ments. In order to increase collection efficiency beyond a certain 
 point an entirely new system must be purchased. Therefore, varying 
 the charge rate could result in large cost penalties. 
 
 The EPA/CEQ study, use of a uniform charge system to control NO2 
 resulted in control costs comparable to the rollback approach, but 
 with charge revenues far in excess of the cost of control. The costs 
 to attain the standard at every receptor were estimated to be $239 
 million, as compared to $254 million under rollback. In addition, 
 
C-5 
 
 $468 million in charge revenues would be collected on uncontrolled 
 emissions. The variable charge system performed much better, with 
 direct annual control costs to sources of approximately $98 million 
 and charge revenues of $75 million; but even in this case the costs 
 were far higher than the least-cost solution of $21 million ( marketable 
 permits ) . 
 
 The fact that the variable charge system adds to the administrative 
 cost and complexity should not be overemphasized. The control cost 
 savings (an estimated $156 million) help justify the more complicated 
 approach and program costs could be readily funded by revenues. On 
 the other hand, the uniform charge system probably represents the 
 popular concept of equity . The sources determine the degree of control 
 most appropriate to their own situation and pay for emission discharges 
 at a uniform rate above the level of control they choose to implement. 
 All sources are treated equally; all costs are borne directly by the 
 sources. 
 
 In summary, the charge systems were fair, offered some benefits in 
 terms of efficiency, but were less effective than direct regulation. 
 In terms of political feasibility , it is a question of public 
 willingness to accept greater risk. 
 
 Theoretically, a marketable permit system will result in the least-cost 
 solution. Here, the controlling agency issues permits which allow a 
 specific amount of pollution to be emitted in the region. These 
 licenses can be specified either in quantities of acceptable emissions 
 or in terms of ground level concentrations: the former for obiquitous 
 pollutants, the latter if the pollution is attributable to a single 
 source. Once the permits have been issued, each source in the region 
 would be allowed to compete or bid for "emission rights". In theory, 
 the cost of additional permits would equal the highest marginal cost of 
 control for each source monitored. 
 
 Clearly, the need to use highly sophisticated modeling approaches would 
 create enormous administrative and enforcement burdens on state and 
 local control agencies. However, under this approach, only 94 out of 
 797 sources would be required to implement controls. The cost of com- 
 pliance, and thus attainment, was an estimated $21 million, or less 
 than 10 percent of the cost under rollback or the uniform charge rate 
 system (a result extremely difficult to approximate in reality) . 
 
 The equity problem with the marketable permit system is simply that 
 sources are not treated equally. Firms would be differentially 
 affected depending on their potential ambient impact and the site where 
 they originally chose to locate. Since firms generally have no control 
 over the development patterns which occur after they locate in a region , 
 they would be penalized for decisions over which they had no control. 
 
 No single control strategy appears clearly superior in all instances. 
 Congress, however, has repeatedly shown its desire to have continuous 
 control systems, and to move increasingly toward uniform requirements. 
 
C-6 
 
 Regulations, in terms of percentage removal, lowest achievable 
 emissions rate, and reasonably available control technology, force 
 the control machinery in the direction of uniform standards of 
 performance independent of ambient impact. Therefore, the use of 
 marketable permit systems or direct regulations tied specifically 
 to ambient impact are of dubious political feasibility . 
 
 II. Controlling Exposure to Asbestos in the Workplace . There are 
 
 currently over 3,000 different commercial uses of asbestos, some of 
 which have no suitable substitutes . But exposure to high levels of 
 asbestos in the air has been unambiguously linked to three types of 
 cancer, though the interval between exposure and onset of the disease 
 is likely to be 10 or more years. What is less certain is the lowest 
 level which will make a person sick. 
 
 Manifestly, the most effective way to protect workers from exposure 
 is to prohibit the emission of asbestos. This is not technically 
 possible, and such an action would force the demise of plants manu- 
 facturing asbestos-containing products. Likewise, setting an ambient 
 standard which required emission control near the limit of technical 
 feasibility would impose heavy financial burdens on many firms, 
 possibly putting some out of business at substantial cost to society 
 in terms of lost jobs and wealth. A compromise position is to set 
 the standard at an achievable level (with some economic criteria) , 
 reducing but not eliminating the health risk. 
 
 Ambient standards would allow firms to adopt the most cost-effective 
 emissions control strategy, whereas an emission standard would force 
 the installation of advanced controls on every source within the 
 plant. In the case of asbestos, however, the ambient standard is 
 likely to be set so low that advanced controls on all emissions 
 sources would probably be necessary. 
 
 A mixed strategy would seem appropriate. Taxing asbestos emissions 
 would work to encourage the adoption of more effective and probably 
 more expensive controls. The success of such a tax scheme may be 
 similar to that of an NO2 emissions tax (above) . Revenues from a tax 
 could be used to compensate victims of asbestos exposure. Since the 
 latency period for asbestos-induced cancers may be measured in 
 decades, it is difficult to attribute individual health responses to 
 specific instances or periods of exposure. A national fund , similar 
 to the structure of Workmen's Compensation, appears to be most appro- 
 priate. At the same time, an information/education program for 
 current and prospective workers in asbestos industries would help 
 workers decide whether working conditions and remuneration levels are 
 sufficient for them to accept the associated health risks. 
 
 III. Automobile Passenger Safety . The regulatory approach to one of the 
 
 problems of auto passenger safety would require that all cars contain 
 air bags or that all passengers wear seat belts. Assuming they 
 function properly, air bags would be effective in reducing bodily 
 injury in some types of collisions, but the program would raise the 
 
C-7 
 
 price of every new car by $300-$500. The device provides no benefit 
 greater than fastened seat belts, which can be utilized at no addi- 
 tional cost to consumers. Applied uniformly to all consumers and 
 manufacturers, an air bag requirement would be equitable but might 
 not be politically feasible because of its infringement on the indi- 
 vidual ' s freedom of choice. Yet requiring that seat belts be worn at 
 all times could be equally effective in reducing bodily injury if it 
 were enforceable . This might be accomplished by revoking the license 
 of any driver if the driver or passengers in the vehicle were not 
 wearing seat belts. Again, this approach may not be politically 
 feasible . 
 
 A combined regulatory/incentive approach would be for the government 
 to require that insurance premiums or claims be adjusted according to 
 use and disuse of seat belts. Seat belt wearers would pay lower 
 premiums than non-wearers, or coverage might exclude injuries which 
 could have been avoided had seat belts been worn. If individuals 
 recognize clearly the increased cost associated with disuse they 
 would probably use seat belts more frequently. This strategy would 
 be inexpensive to adopt and quite equitable , since individuals of the 
 same type (i.e., wearers, non-wearers) would be treated uniformly. 
 And because the premium distinction is based on objective statistical 
 data, the strategy might be politically feasible . 
 
 On the other hand, use of air bags could be induced by imposing a tax 
 on vehicles without them. This would be a market-based incentive 
 which leaves the consumer with the choice of buying air bags or paying 
 the tax. (However, it would not in any way increase the use of seat 
 belts.) The program appears to be inefficient , since the costs could 
 be substantial, with no safety benefits either to those who pay the 
 tax or to those who wear seat belts. There is an obvious inequity to 
 wearers of seat belts. 
 
 The government could subsidize the installation of air bags. Subsi- 
 dized passive restraints might be justified because all drivers are 
 penalized for the carelessness of some in the form of universally high 
 insurance premiums — seat belt wearers paying, directly or indirectly, 
 for the hospitalization costs of those who do not wear set belts. The 
 value of the program might be judged by comparing the aggregate 
 investment in air bags with the avoided expense of physical injury. 
 
 An information/education approach would entail distributing facts 
 about the risks and benefits of driving with no protection, with seat 
 belts, and with air bags. The types of protection, advantages and 
 disadvantages, and cost of each course of action would be made clear. 
 The individual then would determine the acceptable level of risk and 
 act accordingly. Though equitable , economical and easy to implement 
 politically and administratively, the approach probably would not be 
 effective . While approaches other than strict regulation could reduce 
 injuries, their effectiveness would depend on the mood of the public, 
 its willingness to accept risk, and the political difficulties of 
 legislating individual behavior. 
 
C-8 
 
 Alternative mechanisms for government intervention seem to apply more 
 directly to regulatory issues involving health, safety and the environment 
 than to traditional problems of a competitive market. Over the past decade, 
 the bulk of new regulation has dealt with externalities — the burdens cast 
 on outside parties. This paper suggests that alternative regulatory 
 approaches may have merit in dealing with externality problems. Alterna- 
 tives are no better per se than direct regulation. More so than direct 
 regulation, alternatives must be evaluated for their ability to deal with 
 specific cases or narrowly defined generic issues. 
 
 Agencies could be required to consider explicitly alternative forms of 
 regulation and provide a comparative analysis of why a particular approach 
 was selected. Recognizing that not all social ills can be remedied 
 simultaneously, another approach would be the establishment of a risk/cost/ 
 benefit framework in which those social ills which represent a "clear and 
 present" danger were given priority. (This, for example, might mean 
 sacrificing noise abatement standards in favor of a more agressive toxic 
 substances program.) 
 
 The two approaches could be combined: an oversight committee would be 
 responsible for establishing priorities and the agencies would be respon- 
 sible for insuring that alternatives to regulation be considered. However, 
 realistically, many agencies, because of their legislative mandates, do not 
 have the flexibility to set program priorities or to consider alternatives. 
 In order to implement either of the above approaches, a significant 
 reshaping of the laws governing these agencies would be required. 
 
 In general, economists have concluded that tax approaches would be the 
 most efficient. Regulation has the advantage of administrative feasibility 
 but the drawback of numerous inefficiencies. While subsidy approaches are 
 equated with tax approaches in terms of potential for efficiency, they are 
 generally less equitable and less feasible administratively. Mixed 
 approaches were sometimes found to offer the most desirable performance 
 opportunities . 
 
C-9 
 
 PREFACE 
 
 This work was commissioned by the Office of Regulatory Economics 
 and Policy of the Department of Commerce with the objective of 
 encapsulizing possibilities, experience, and prospects in the use 
 of alternatives to regulation. The work does not represent an 
 exhaustive search of the literature or past experiences. It is 
 rather an illustrative sampling of past and current thought and 
 experience with alternatives to regulations . 
 
C-ll 
 
 TABLE OF CONTENTS 
 
 Page 
 INTRODUCTION C-13 
 
 1 . 1 Focusing on Alternatives C-14 
 
 1 . 2 Organization of the Paper C-16 
 
 ALTERNATIVE APPROACHES C-17 
 
 2 . 1 Regulatory Approaches C-17 
 
 2.1.1 Performance Standards C-17 
 
 2.1.2 Specification Standards C-17 
 
 2.1.3 Case-by-Case Permits or Standards C-17 
 
 2.1.4 Other Regulations C-19 
 
 2 . 2 Incentive or Market-Based Approaches C-19 
 
 2.2.1 Taxes or User Charges C-19 
 
 2.2.2 Subsidies C-20 
 
 2.2.3 Liability Measures C-20 
 
 2 . 3 Informational Approaches C-20 
 
 2.3.1 Disclosure C-21 
 
 2.3.2 Education C-21 
 
 2.3.3 Jawboning C-21 
 
 2 . 4 Mixed Approaches C-21 
 
 2.4.1 Marketable Permits, C-22 
 
 2.4.2 Tax Surcharge C-22 
 
 CRITERIA C-23 
 
 3 . 1 Effectiveness C-23 
 
 3 . 2 Efficiency C-24 
 
 3 . 3 Equity C-25 
 
 3.4 Political Feasibility C-26 
 
 3 . 5 Summary C-26 
 
 USE OF ALTERNATIVES C-28 
 
 4 . 1 Short-term Nitrogen Dioxide Standard C-28 
 
 4.1.1 The Problem C-28 
 
 4.1.2 Alternative Approaches to Control C-29 
 
 4.1.3 Criteria for Evaluation C-29 
 
 4.1.3.1 Traditional Regulatory Approach 
 
 - Rollback C-29 
 
 4.1.3.2 Incentive Approaches - Uniform 
 
 and Variable Emission Charges 
 
 4.1.3.3 Mixed Strategies - Marketable 
 Permits/Optimal Direct Control C-31 
 
 4.1.4 Summary - Nitrogen Dioxide Control C-36 
 
 4.2 Controlling Exposure to Asbestos in the Workplace C-36 
 
 4.2.1 Background C-36 
 
 4.2.2 Intervention Alternatives C-36 
 
 4 . 2.2.1 Regulation - Asbestos C-36 
 
 4.2.2.2 Incentives - Asbestos C-38 
 
 4.2.2.3 Informational Approach - Asbestos C-38 
 
 4.2.3 Summary - Asbestos c-38 
 
C-12 
 
 TABLE OF CONTENTS CONTINUED 
 
 Page 
 
 4 . 3 Automobile Passenger Safety C-39 
 
 4.3.1 The Problem C-39 
 
 4.3.2 Alternative Approaches C-39 
 
 4.3.2.1 Regulation - Auto Safety C-39 
 
 4.3.2.2 Insurance Alterations - Auto Safety C-40 
 
 4.3.2.3 Taxes - Auto Safety C-40 
 
 4.3.2.4 Subsidies - Auto Safety C-40 
 
 4.3.2.5 Information and Education - Auto Safety., c-41 
 
 4.3.3 Summary - Auto Safety C-41 
 
 5 . SYNOPSIS C-42 
 
 ANNOTATED BIBLIOGRAPHY C-44 
 
 BIBLIOGRAPHY C-55 
 
C-13 
 
 1 . INTRODUCTION 
 
 This paper is intended to provide a framework for discussion on the possi- 
 bilities of using alternative approaches in place of regulations when the 
 government intervenes in the economy. Regulations are probably the most 
 common form of government intervention, but have created some dissatisfac- 
 tion among observers due to adverse side effects and excessive public costs. 
 Alternative strategies, such as incentives or informational approaches, may 
 offer potential for achieving social objectives at lower costs to society. 
 Hence while not rejecting regulations as entirely inadequate or inappropriate, 
 this paper examines the comparative advantage of alternative approaches to 
 government intervention . 
 
 There are several approaches by which the government can direct, control, or 
 influence decisions made by individuals . These mechanisms can be placed into 
 four classes which are believed to encompass the range of alternatives . The 
 four classes are : 
 
 • Direct regulation 
 
 • Incentive or market-based approaches 
 
 • Informational approaches 
 
 • Mixed approaches 
 
 Each of these approaches has been used to some degree by the government to 
 influence decisionmaking in the private sector. However, the effectiveness 
 of each varies with the context of the intervention. Guidance on selecting 
 appropriate mixes of intervention strategies for alternative settings is a 
 central outcome of this discussion. 
 
 The material presented herein does not necessarily reflect new or original 
 information. Rather, a more limited objective has been adopted. This is 
 to establish a framework within which this subject can be constructively 
 discussed. 
 
 While there are many instances where individuals may pursue their own interests 
 and in aggregate lead to pursuit of the greatest welfare for society in general, 
 there are unfortunately a number of instances in which maximization of personal 
 and social welfare is not necessarily compatible or, indeed, is often in 
 conflict. These areas indicate a clear need that may be met by government 
 intervention. 
 
 Prominent examples of such situations include environmental degradation 
 resulting from the failure of the value of a clean environment to be included 
 in the price system, and problems with occupational and consumer product 
 safety and health stemming from involuntary assumption of risks by the public 
 amidst a lack of information regarding hazards. These are problems of social 
 externalities and imperfect information. The approaches for government 
 intervention to address these kinds of problems form the focus of this paper. 
 
 Nichols, Albert L. and Richard Zeckhauser, "Government Comes to the Workplace 
 An Assessment of OSHA," The Public Interest, Fall 1977, pages 44-46. 
 
C-14 
 
 While there may be cases where the objective the government is seeking to serve 
 is clearly wrong, the more frequent occurrence is that people can agree on the 
 general objectives but disagree over the form and substance of the response. 
 Most people agree that we need to protect the environment, that worker safety 
 should be a primary concern of the government, and that actions to protect 
 public health are imperative. Where they disagree is over issues such as 
 whether a new, short-term standard for nitrogen dioxide emissions is required 
 and, if required, what the level of the standards should be, what the causes 
 of high NC>2 are, and how the levels can be reduced. Each of these issues can 
 be addressed as a separate subject and can be a source of enormous controversy. 
 
 It is not, however, the purpose of this paper to deal directly with the three 
 issues just outlined: 
 
 • Is there a need for government intervention? 
 
 • If so, at what level or point would the costs exceed the benefits? 
 
 • What are the primary causes of the problem? 
 
 Rather, our attention is focused on the question that follows once these issues 
 have been resolved and some form of government intervention is planned: 
 
 • How should the government intervene? 
 
 Though this final question can be separated from, it is not unrelated to, the 
 first three. Thus, to some extent, we will be occupied with the totality of 
 the problem. 
 
 1.1 FOCUSING ON ALTERNATIVES 
 
 Although perhaps a misconception, it appears that much of the controversy which 
 surrounds the question of how should the government intervene, stems from two 
 sources. First, people have honest differences of opinion as to how effective 
 certain alternatives will be in achieving a given objective and second, there 
 are significant differences in interpretation as to what is meant when concerned 
 individuals discuss these alternatives. These differences of opinion and 
 interpretations are compounded by the fact that there have been few applications 
 or case studies of the use of alternatives to regulation. A selected review of 
 the literature confirms this fact. 
 
 Appended to this report is an annotated bibliography on a selected list of some 
 of the more important works in this field. Several observations are justified 
 on the basis of this review. 
 
 First, the vast majority of these studies are highly theoretical. Little 
 reference to empirical evidence or experience was made. The conclusions of 
 these studies, therefore, could be best described as conjectural, which, 
 while providing a lively debate and a rich literature, do not resolve the 
 central question of experience with, and prospects for, the use of alternatives 
 to regulation. 
 
 The exceptions to the above statement are experiences in the Ruhr Valley with 
 effluent charges and various incentive schemes to encourage the use of disposable 
 containers and/or to encourage recycling. The Ruhr Valley experience, while 
 
C-15 
 
 interesting, is not directly applicable to the U.S. Between the U.S. and 
 Germany there are significant differences in the degree of direct government/ 
 industry cooperation and also extreme differences in the level of pollution 
 control being sought. Additionally, application of a fee system to a portion 
 of a small river system is quite different — simpler — than application to the 
 entirety of a large river system. For an effluent charge scheme to be 
 effective in the U.S., the charge rate would have to be substantially higher 
 and, therefore, have the potential for creating significantly greater first 
 and second order impacts. These impacts would have to be studied in-depth 
 before proceeding with the application of an effluent charge approach in the 
 United States or generalizing from the Ruhr Valley experience. 
 
 Generalizing from the incentives systems which have been used is difficult and 
 risky. For example, experience from the use of systems which discourage the 
 use of disposable containers and encourage recycling can be misleading. These 
 are areas where an incentive market mechanism is already in place to deal with 
 the situation and where the application has been usually on a limited scale. 
 Given that the creation and long-term viability of a market is critical to the 
 use of market-type incentive systems, it is not clear, therefore, what insight 
 they provide to more general use of alternatives to regulation. 
 
 Second, is that the focus of the literature is narrow relative to the range of 
 issues where government intervention is considered or advocated. The literature 
 deals in-depth with emission charges and effluent fees but is severely lacking 
 in discussions of incentive or informational approaches to questions of human 
 health and safety, and the pragmatic balancing of risks, costs and benefits. 
 The lack of studies in these areas limits the usefulness of a full-scale review 
 of the literature when considering alternatives to regulation over the full 
 range of government activities. 
 
 Third, most of the studies focus on questions of economic efficiency. While 
 economic efficiency is important, it is not the sole criterion with which to 
 judge the efficacy of using approaches other than direct regulations. As 
 stated by Russell Train, previous Administrator of the Environmental Protection 
 Agency, in response to a question on the use of emission charges as a substitute 
 for direct regulation, "...to substitute emission charges for regulations at 
 this point would subvert the very significant progress we are making in dealing 
 with our urgent environmental problems . It would be quite disruptive to make 
 such a change until the initial objectives of the new environmental legislation 
 of this decade are achieved." Whether this statement is true is not the issue. 
 The fact is, that the use of emission charges was being rejected on the basis 
 of a much different set of criteria. While economic efficiency is an important 
 principle, other factors, such as effectiveness, equity, and political 
 feasibility, must also be considered. 
 
 Finally, while the literature may have its shortcomings, it cannot be dismissed. 
 By reviewing the literature it is possible to construct a general framework 
 within which the subject of alternatives to regulation can be constructively 
 
 *„ , 
 
 The Economxc Impact of Environmental Regulations," Hearings before the 
 
 Joint Economic Committee, November 19, 21, and 22, 1974, page 191. 
 
C-16 
 
 discussed. While people may disagree with the definitions presented in this 
 paper, the discussion in the following sections attempts to establish a 
 framework and a common starting point for sorting out substantive versus 
 definitional differences of opinion. 
 
 1.2 ORGANIZATION OF THE PAPER 
 
 Section 2 discusses the alternative approaches or options available to the 
 government. Within each of the generic classifications mentioned above, 
 several options — such as performance standards, permits, taxes, or subsidies — 
 are discussed. The objective of this section is simply to provide some 
 definitions which can give focus to discussions of alternatives . It should 
 be noted from the outset, however, that no attempt has been made to define 
 all the possible options. The list in practice would be almost infinite 
 since it is shaped directly by each situation in which government intervention 
 is deemed necessary. 
 
 Section 3 attempts to define criteria which can be used to evaluate the use 
 of particular alternatives. These criteria were designed to be applicable 
 across broad categories. However, this is not to say that all the advantages 
 or disadvantages of a given alternative in each particular situation can be 
 identified solely from these criteria. Likewise, the definitions given will 
 not, in all likelihood, be universally acceptable, but may, nonetheless, 
 serve as useful reference points for discussion. 
 
 Section 4 discusses how alternative approaches might be used and how the 
 tradeoffs could be considered in light of the criteria presented in Section 
 2 . This section covers a number of key issues and examples that highlight 
 the differences between the alternatives. 
 
 Section 5 is a summary. Although we have tried to avoid a dogmatic approach, 
 certain observations were unavoidable. These are presented as general guides 
 for discussion rather than as definitive statements. Indeed, this paper will 
 have been successful if, as a result of the background information and the 
 analytical framework provided, readers are stimulated in formulating different 
 and possibly innovative observations on this subject. 
 
C-17 
 
 2. ALTERNATIVE APPROACHES 
 
 The number of approaches that the government may take is large , but can be 
 reduced to just three if grouped into broad classes. These classes are 
 regulatory approaches, incentive or market-based approaches, and informational 
 approaches. The approaches also may be combined into a fourth class — mixed 
 approaches . 
 
 In the abstract, each of these approaches can be considered variations on a 
 behavioral modification theme. Each operates by causing some change in the 
 behavior of a target population — regulation, by prohibiting some action via 
 (usually) a legal penalty; economic incentive, by raising or lowering the 
 perceived cost of the action to the affected party; and information provision, 
 by improving the information base which shapes behavior. In application, of 
 course, the alternative forms of intervention differ substantially. Likewise, 
 the relative effectiveness in achieving the desired result is likely to vary 
 widely. 
 
 Each kind of approach has many variants. Table 1 lists the major variants for 
 each approach. These will be discussed in this section. This section only lays 
 out the basics of each approach and variant. No critique is presented here. 
 
 2.1 REGULATORY APPROACHES 
 
 The major variants of regulatory approaches are performance standards , 
 
 specification standards, and case-by-case permits or standards. 
 
 2.1.1 Performance Standards 
 
 Performance standards are regulations that require certain results or outcomes . 
 For example, new sources of pollution are often issued performance standards 
 that require them to emit no more than X grams per horsepower -hour or Y tons 
 per year of pollutants into the environment. 
 
 Performance standards may be set with regard to the feasible or practical 
 technologies that may allow them to be met, but, at least in theory, do not 
 require that specific technologies be used for compliance. 
 
 2.1.2 Specification Standards 
 
 Specification standards are regulations that require certain technologies or 
 practices, leaving the results or outcomes flexible. For example, workplaces 
 have often been issued specification standards requiring that hand railings be 
 installed. The intention is to cut down on accidents but accidents are not 
 directly regulated by the standards. 
 
 2.1.3 Case-by-Case Permits or Standards 
 
 Whereas regulations are frequently set on a uniform basis for a region or 
 industry, they may also be set on an individual case-by-case basis. In this 
 manner, specific conditions are taken into account. For example, municipalities 
 
 * 
 Nichols and Zeckhauser, op . cit . , page 49. 
 
C-18 
 
 TABLE 1 
 ALTERNATIVE APPROACHES AND THEIR MAJOR VARIANTS 
 
 • Regulatory Approaches 
 
 Performance standards 
 
 - Specification standards 
 
 - Case-by-case standards or permits 
 
 • Incentive Approaches 
 
 Taxes (user charges, fees) 
 
 - Subsidies 
 Liability measures 
 
 • Informational Approaches 
 
 Disclosure 
 
 Education 
 
 Jawboning 
 
 • Mixed Approaches 
 
 - Marketable permits 
 Surcharges 
 
 Combinations of the above or others 
 
C-19 
 
 are sometimes issued permits allowing them to dump only certain quantities 
 per year of solid waste into bodies of water. If binding, the permits force 
 the municipalities to deal with extra wastes through some other means (such 
 as recycling, burning, or on-land disposal) . Standards may also be set on 
 a case-by-case basis, in theory. 
 
 2.1.4 Other Regulations 
 
 Regulations have numerous forms and dimensions. Some deal with information 
 reporting and recordkeeping, others with structures for setting rates for 
 customers (to deal with pecuniary externalities such as the need for greater 
 investments by utility companies to accommodate peak-load demand) , others 
 with yet different problems. 
 
 Regulations may also differ in terms of their penalties for noncompliance, the 
 frequency of their monitoring and inspection, and the procedures by which they 
 are set. Some may be intended for strict enforcement, others for use only if 
 violations are extreme . 
 
 2.2 INCENTIVE OR MARKET-BASED APPROACHES 
 
 The major variants for incentive or market-based approaches are taxes, subsidies, 
 and liability measures. The feature in common to all incentive approaches is 
 that they act in a market-like manner and work with the market to alter the 
 total costs or benefits of actions for firms or the public . 
 
 2.2.1 Taxes or User Charges 
 
 In the case of social externalities , the imposition of costs upon the public 
 is like the consumption of a public resource and thus may be met with a user 
 charge, fee, or tax. Ideally, the tax would reflect the damage to the public. 
 
 If the tax on an action is greater than the costs of its avoidance, then the 
 tax will motivate firms or the public to stop the action that is imposing the 
 social externality. If the costs of avoiding an action were greater than the 
 tax, however, the firms or public would tend to pay the tax and continue the 
 action. This need not be undesirable if the tax reflected the costs of the 
 action to society. For example, there are some discharges into the environment 
 that save the public money overall or some accidents that would be avoidable 
 only at tremendous expense. 
 
 A tax may be difficult to envision for some situations, yet theoretically a 
 tax might be designed. For instance, makers of consumer products could be 
 taxed for each accident that occurs from defects in the product. Employers 
 could be taxed for each accident on their premises caused by unsafe condi- 
 tions. The tax would be both an incentive to improve safety and a source 
 of revenue which might possibly compensate the victims. 
 
 "U.S. Files Pollution, Ocean-Dumping Suits Against Philadelphia," Wall 
 Street Journal , May 25, 1978. 
 
 Nichols and Zeckhauser, op . cit . , pages 65-67. 
 
C-20 
 
 2.2.2 Subsidies 
 
 Subsidies work in the opposite direction from taxes or charges . By making an 
 activity less expensive, they promote its adoption. Hence, a subsidy for 
 adopting a less polluting technology may lead to a reduction in pollution. 
 A subsidy for worker training may improve job safety. Subsidies typically 
 are paid from general revenues and are thus paid by the public. This differs 
 from the tax approach, which assesses a charge for a specific action. 
 
 2.2.3 Liability Measures 
 
 Matters of social externalities or imperfect information tend to be problems 
 traditionally known as tort liability matters when handled through courts . 
 One party is in effect seeking to avoid or recover damages inflicted by the 
 actions of another . There are three main mechanisms that come under the 
 heading of liability measures . 
 
 Law suits are one means of dealing with these problems. To the extent that 
 better or cheaper access to legal proceedings was provided to the public, this 
 measure would tend to lessen some health, safety, or environmental problems. 
 Legal clinics , class action suits , and other measures may improve the public 
 ability to avoid or recover damages. 
 
 Compensation funds may be required by the government to set up a pool or fund 
 from which victims can be compensated for bodily injury or property damage. 
 Workmen's compensation is one example. Employers pay into a fund that is 
 used to compensate employees who have been injured on the job. To the extent 
 that such funds are experience-rated, i.e., payments are linked to the actual 
 experience of the firms in safety or pollution, they increase the liability 
 or accountability of the firms to any members of the public that they harm. 
 
 Insurance plans are basically a means of pooling risk but can also have an 
 impact on the apportionment of liability and, thus, on the incentives for 
 avoiding injuries or claims. If premiums paid reflect experience, insurance 
 may function with little distortion of liability. If premiums are uniform, 
 insurance plans may lead to distortions or lack of liability for costs generated 
 by firms or the public. This would happen since damages and claims would have 
 no tie to the costs to individuals, only to costs in aggregate. Naturally, 
 other considerations are involved in insurance — notably, the desire to increase 
 the security of the public, which is not the same as internalizing costs or 
 risks. 
 
 2.3 INFORMATIONAL APPROACHES 
 
 Informational approaches include measures that encourage better disclosure 
 the public, educate the public on facts or risks, or seek to persuade firms 
 or the public to change their behavior. The common feature of all informational 
 approaches is that they work solely through information and allow the public to 
 make choices with existing costs and benefits unchanged. The reaction of the 
 
 *Nichols and Zeckhauser, op . cit . , pages 65-67. 
 
 **Ibid. , pages 65-67 
 
C-21 
 
 public, acting through demand and the price mechanisms, will in turn create 
 incentives or disincentives for actions by firms or may directly represent 
 the actions sought by policies. 
 
 2.3.1 Disclosure 
 
 A disclosure approach would require (or provide an incentive for) firms to 
 disclose the characteristics of their products or impacts of their environ- 
 mental policies more fully. Existing advertising by firms tends to be short 
 and catchy, rather than fully informative on technical details. Moreover, 
 if a firm has a poor record on product safety or the environment, it may be 
 the least likely to disclose its record voluntarily. In other cases, 
 disclosure may be common but not in comparable terms to allow consumer 
 judgments. 
 
 The philosophy behind disclosure measures is that fully informed individuals 
 are able to make better decisions for themselves than uninformed individuals. 
 This will help reduce cases of hazards that were assumed involuntarily. 
 
 2.3.2 Education 
 
 Educational measures go beyond disclosure to seek to interpret information for 
 the public, bring it more directly to the public's attention, or prehaps in 
 some cases even try to persuade the public to take a different assessment of 
 its own welfare. In some cases it may be necessary to educate the public in 
 order for a disclosure to be meaningful. For example, a basic public under- 
 standing of nutrition is essential if disclosure of the nutritive content of 
 a product is to be of value. 
 
 Warnings of various kinds are ways to increase awareness of the importance of 
 safety criteria in making choices. Hints and lessons may also be included, 
 as when ways to lessen risks during household fires are broadcast over the 
 media as public service announcements. 
 
 2.3.3 Jawboning 
 
 Jawboning is a term that has been coined to denote efforts by the government 
 to persuade the public to take some action. It has received much attention 
 in relation to inflation and price increases, when the government has requested 
 unions or firms to restrain wage or price increases . As applied to social 
 externalities or imperfect information, jawboning involves government requests 
 for firms to stop polluting or to improve safety . The requests are for voluntary 
 action but may entail an implicit threat that if compliance is not soom forth- 
 coming a measure such as regulation or litigation may be taken. Jawboning 
 sometimes involves consent decrees — agreements by members of the public to stop 
 an action without admission or guilt, liability, or wrongdoing. 
 
 2.4 MIXED APPROACHES 
 
 Mixed approaches involve combinations of the above or other approaches . Aside 
 from the possibility of mixing any combination of approaches in a package , 
 these approaches include marketable permits and tax surcharges . 
 
 Kelman, Steven, "Regulation by the Numbers — A Report on the Consumer Product 
 Safety Commission," The Public Interest, Summer, 1974. 
 
C-22 
 
 2.4.1 Marketable Permits 
 
 A marketable permit is a device that allows a firm or person to continue an 
 activity but also to have the opportunity to sell that right to another firm 
 or person. By issuing a limited number of permits, an authority can thus 
 establish a ceiling on the amount of activity allowed, e.g., pollution in a 
 basin or a number of accidents. By allowing such permits to be marketable, 
 the authority can avoid situations where some firms have to comply at great 
 costs while others comply but could have reduced emissions or hazards even 
 further at less cost. The marketability allows flexibility within a context 
 of the fixed aggregate permitted levels. Selling permits may also raise 
 revenues for the government. 
 
 2.4.2 Tax Surcharge 
 
 In light of the likelihood that less than 100 percent of emissions or hazards 
 will be eliminated when a tax approach is used , a tax surcharge system may be 
 adopted. This approach allows a specified level of activity at no charge and 
 imposes a surcharge for all activity beyond the set level. For example, firms 
 would be allowed to emit a certain amount of pollution each year without 
 charge. Any emissions beyond this amount would be subject to a tax. Thus, 
 a tax incentive would be combined with a regulatory approach. There would be 
 a tax disincentive to continue polluting but no tax on firms that reduced 
 pollution to acceptable levels . 
 
C-23 
 
 3 . CRITERIA 
 
 Direct regulation has been criticized from every conceivable standpoint. 
 Regulators find themselves in a buffer zone between the people they are 
 attempting to protect and those that they are seeking to control. Within 
 these buffer zones they are subjected to additional pressures from other 
 regulatory agencies, from the legislators who drafted the implementing 
 legislation, from the executive branches of government which will be held 
 accountable, and indeed, from individuals within the agency itself who 
 hold differing points of view. 
 
 Criticism, however, must be expected. As stated by David Harrigan, a 
 commissioner with the Connecticut Public Utilities Control Authority, "If 
 you are the buffer you are going to be buffeted." This will always be the 
 case in situations where someone stands to gain and someone stands to lose. 
 Problems that appear to require regulatory solutions are almost always of 
 this nature, involving instant confrontations in which the regulator's only 
 shield is objectivity. 
 
 Criticism does not necessarily have to have a negative connotation. By 
 studying the major areas of criticism we can begin to identify common 
 problems. These problems, in turn, can be used to establish criteria for 
 evaluating both the use of, and alternatives to, regulations. 
 
 The most common forms of criticism fall into three major categories: 
 
 • Effectiveness 
 
 • Efficiency 
 
 • Equity 
 
 These categories in turn contain several subcriteria which may, or may not, 
 be important in specific situations. Also intertwined throughout the entire 
 problem is the question of political feasibility. All four of these areas 
 are deserving of separate treatment. 
 
 3.1 EFFECTIVENESS 
 
 Effectiveness involves the question of whether the means by which the 
 government chooses to intervene will accomplish the objective it was 
 designed to serve. More specifically, effectiveness normally encompasses 
 the concepts of administrative feasibility and enforceability. 
 
 Being the most direct form of government intervention, regulation is often 
 presumed to be the most effective means to achieve a given objective. This, 
 however, is not necessarily the case. On the administrative side, direct 
 regulation often suffers from both resource and informational constraints. 
 Resource constraints involve questions of whether adequate staff is available 
 
 "State Utility Regulators Find Job is "Turbulent* As Consumers Battle 
 Companies Over Rate Hikes , " Wall Street Journal. 
 
C-24 
 
 to administer the program or whether the mix of skilled professionals is 
 consistent with the requirement. Informational considerations involve 
 whether the causes of the problem can be adequately identified, and, once 
 identified, whether the control technique can be adequately specified to 
 insure attainment. Too often these constraints are either ignored or the 
 regulations are specifically designed to overcome these limitations. If 
 these constraints are ignored it is unlikely that the objective will be 
 achieved. If these limitations are treated explicitly in the design of the 
 regulation, there is an excellent chance that the regulations will require 
 overcontrol. In either event, significant waste and inefficiency can 
 result. Criticism of effectiveness usually focuses on this waste and 
 inefficiency. 
 
 Enforcement is also essential to the effectiveness of an approach. Even if 
 
 a regulation is administratively feasible it is not necessarily enforceable. 
 
 Enforcement involves two issues: (1) can a violation be detected, and (2) 
 
 can the source be forced to comply in the absence of judicial proceedings. 
 
 For example, it may be administratively feasible to impose a unit charge on 
 
 a form of pollution, but it may not be feasible to detect violations and 
 
 thereby assess charges because of a lack of monitoring data. Likewise, even 
 
 if violations can be detected, in many instances compliance can only be achieved 
 
 after lengthy court battles. Access to the courts is a right to which all 
 
 parties are entitled, but too often the use of the courts is a delaying 
 
 tactic. Numerous cases can be cited where the economic benefits t>f noncompliance 
 
 were much greater than the cost of lengthy court battles and the fines which 
 
 might ultimately be imposed by the court. 
 
 The use of direct regulation therefore does not necessarily ensure effective- 
 ness, but neither do other forms of government intervention. The criteria, 
 however, with which to judge the effectiveness of a particular alternative 
 could be stated in terms of administrative feasibility and enforceability. 
 The criteria to judge these two measures are: 
 
 • Resource constraints 
 
 • Informational constraints 
 
 • Detectability 
 
 • Compliance 
 
 3 . 2 EFFICIENCY 
 
 Whereas the primary criticism of groups seeking government intervention is the 
 lack of effectiveness, the primary criticism of those groups subject to control 
 is efficiency. Efficiency from an economist's perspective would be defined as 
 maximization of social welfare, conveniently defined as equalization of social 
 costs and benefits at the margin. 
 
 While these concepts are frequently discussed, they become increasingly diffi- 
 cult to follow in practice. The problem lies in that many of the costs and 
 benefits defy measurement. For example, how should we value the reduction in 
 a unit of pollution which will only build up to harmful concentrations in the 
 atmosphere over many decades, or how do we value the loss of freedom stemming 
 from smoking bans in public places. 
 
C-25 
 
 In the absence of direct measurement of costs and benefits, the question 
 often distills down to whether a "prudent person" would consider control 
 to be in the public interest and whether the cost of control is reasonable. 
 A related concept which is coming into increasing use is to interject risk 
 into the equation. The question then becomes whether a "prudent person" 
 would consider control to be in the public interest and whether the social 
 risk of non- or only limited intervention is significantly greater or less 
 than the cost of control. The reason for focusing specifically on risk is 
 to make explicit the judgment that zero risk is not attainable or its 
 corollary, some risk must be acceptable. The degree of risk we are willing 
 to accept will vary as a function of the objective. 
 
 When efficiency takes into consideration allowable risk, it becomes feasible 
 to consider many alternative forms of government intervention. Direct regu- 
 lation, which commonly carries with it the implicit objective of zero risk, 
 is no longer required. Informational approaches may be deemed quite acceptable 
 and incentive type approaches, which attempt to use the market, might even 
 offer more efficient solutions. 
 
 3.3 EQUITY 
 
 Equity is a highly subjective concept but one that is nonetheless quite 
 important. In most cases of health, safety, or environmental protection, 
 an approach is judged to be equitable if standards of performance are 
 uniform and the source that has created the need for government intervention 
 bears the cost. 
 
 The reason why equity is an important concept is that it often conflicts with 
 the first two criteria. For example, if uniform standards of performance are 
 required, sources with particularly high costs of control may find it in their 
 economic self-interest not to comply. This complicates the enforcement 
 process and thus the effectiveness of the program. Likewise, it is widely 
 recognized that the risk to the public is not uniform among all sources 
 (e.g., urban versus rural powerplants) . If source specific characteristics 
 are important in determining the degree of risk, uniform standards based on 
 worst case conditions can lead to significant overcontrol thereby increasing 
 the cost at little or no benefit to society. 
 
 Similar examples can be cited with respect to the criterion that the party 
 causing the particular problem bears the cost. It can be shown that it may 
 be more efficient for the government to subsidize pollution control, rather 
 than force individual sources to finance controls. In the case of individual 
 compliance, additional legal and administrative costs are incurred without 
 a reduction in the costs of control. Additionally, the benefits to the 
 public may be realized sooner if a government subsidy is used. 
 
 The equity aspect of regulation cannot be ignored. While it may not be 
 explicitly discussed in the context of any particular case for government 
 intervention, it is implicit throughout the established regulatory framework. 
 Whether equity should be any less or more important than effectiveness or 
 efficiency is questionable. Equity considerations deserve to be discussed to 
 the extent that they constrain the use of alternatives to direct regulation. 
 
C-26 
 
 3.4 POLITICAL FEASIBILITY 
 
 An issue which cuts across the boundaries of effectiveness, efficiency, and 
 equity is political feasibility. Whereas it may be feasible in the abstract 
 to discuss tradeoffs among the above criteria, it may not be politically 
 feasible to discuss them. Political feasibility is dynamic; what might be 
 acceptable under one administration may not be acceptable under another. 
 Likewise the attitudes of the public change as does the ability of special 
 interest groups to influence the decisionmaking process. 
 
 It is difficult to establish criteria for evaluating the political feasibility 
 of proposed actions. However, in the context of the issues discussed in this 
 paper, it is probably most closely approximated by the perceived willingness 
 of the public to accept risk and its willingness to accept innovative approaches 
 Within the current cost-conscious environment, the willingness of the public 
 may rank high on both of these counts . 
 
 3.5 SUMMARY 
 
 Figure 1 attempts to summarize the above criteria. It is recognized that 
 these criteria will not be universally acceptable or inclusive of all the 
 considerations that are deemed relevant. They were meant solely to establish 
 some broad guidelines for considering the alternatives presented in Section 2. 
 
C-27 
 
 FIGURE 1 
 CRITERIA FOR EVALUATING ALTERNATIVES TO REGULATION 
 
 Effectiveness 
 
 Administrative,. 
 Feasibility 
 
 Enforceability 
 
 Resource Contraints 
 
 Informational Constraints 
 
 Detectability 
 Compliance 
 
 Efficiency 
 
 Equity 
 
 Costs 
 
 Eenef its- 
 
 Risk 
 
 Uniformity of Standards 
 
 Incidence and Burden of Costs 
 
 Political Feasibility 
 
 -Acceptance of Risk 
 
 JVillingness to Use Innovative 
 Approaches 
 
C-28 
 
 4. USE OF ALTERNATIVES 
 
 The previous two sections have attempted to establish a framework within which 
 to consider alternatives to regulation. By necessity, much of the material 
 presented in those sections involved abstract concepts which at best offer 
 insights only when applied to real problems. As noted previously, few studies 
 in the literature have attempted to deal with the practical problems of alter- 
 natives to regulation, or for that matter regulations per se. The case study 
 presented below was one attempt to test intervention alternatives in an 
 empirical context. While it may be difficult to generalize from the results 
 of this study, it does illustrate how the tradeoffs between the use of tradi- 
 tional regulatory strategies and other approaches might be compared. Two 
 additional cases are discussed in this section. They could not be developed 
 in as much detail, but were included to demonstrate the range of issues which 
 need to be considered . 
 
 4.1 SHORT-TERM NITROGEN DIOXIDE STANDARD 
 
 The Clean Air Act Amendments of 1977 require the Environmental Protection 
 Agency (EPA) to determine if a short-term standard for ambient concentrations 
 of nitrogen dioxide (NO2) is necessary to protect public health. The Act 
 required the EPA to review the available evidence on health effects , publish 
 its findings, and, if a health risk were established, to promulgate a standard 
 within one year. Simultaneously, the Congress required the EPA in conjunction 
 with the Council on Environmental Quality (CEQ) to study the use of economic 
 incentives to air pollution control, and more specifically, to the control of 
 NO2. While neither EPA's health effects findings nor the study of economic 
 approaches to air pollution have been published, certain findings of these 
 studies are cited below.* 
 
 4.1.1 The Problem 
 
 NO2 is the oxidation product of nitrogen oxide (NO) , emitted primarily (98 
 percent) by combustion of fossil fuels. The formation process includes both 
 temperature dependent oxidation of NO by atmospheric oxygen (at high concen- 
 trations of NO) and oxidation of NO by atmospheric ozone, at all concentrations 
 of NO. N0 2 is subsequently transformed into other compounds, making the net 
 level of NO2 at any point in the atmosphere the result of a complex interactive 
 chain of reactions. 
 
 High concentrations of N0 2 have been shown to cause health effects. Both 
 laboratory and epidemiological studies have placed the health damage 
 threshold at 1,000 to 1,500 micrograms of NO2 per cubic meter (ug N02/m 3 ) • 
 
 Sources of NO x (N0 2 plus NO) include both mobile and stationary sources with 
 both ground level and elevated discharge points. While the percentage of 
 emissions from these sources will vary by time of day, by season, by region 
 and by other factors, NO x is emitted on an annual basis roughly on the 
 
 *These findings represent the view of the contractor and do not necessarily 
 represent the viewpoint of either the Environmental Protection Agency or 
 the Council on Environmental Quality. 
 
C-29 
 
 quantities and percentages shown in Table 2. The mix of sources is quite 
 heterogeneous and if control is required it will involve a relatively complex 
 control strategy. 
 
 4.1.2 Alternative Approaches to Control 
 
 The Clean Air Act requires that once the need for control has been demonstrated 
 that a control strategy be selected which ensures that violations will occur no 
 more frequently than once per year. For a 1-hour standard this is an extremely 
 stringent requirement, equivalent to a probability of occurrence of no more 
 than .0001 in any given year. If the state fails to demonstrate that this 
 standard can be met, EPA is required by statutes to impose its own requirements 
 on the offending sources . Given the stringency of the requirement and the need 
 for highly effective controls, certain approaches to government intervention 
 may be precluded. 
 
 Four classes of mechanisms were discussed in Section 2. These include regula- 
 tions, incentives, informational approaches, and mixed strategies. All but 
 the informational approaches were included in the EPA/CEQ study. 
 
 In order to study these alternatives a sample Air Quality Control Region (AQCR) 
 was selected. The AQCR was segmented into 5x5 kilometer grid areas with area 
 source emissions (both mobile and dispersed area) and point sources modeled 
 separately. In total, the region was divided into 640 grid cells with 796 
 separate point sources individually located. 
 
 The alternatives that were considered in this study include both traditional 
 and non traditional regulatory approaches. The traditional approach was to 
 apply a concept called "rollback" to each source based on the maximum percentage 
 control required for any source in the region. This would imply that if the 
 maximum measured concentration was 800 ug/m^ and the standard was 500 ug/m^, 
 every source in the region would have to reduce its emissions by 38 percent.* 
 
 Nontraditional approaches included the use of emission charges designed to 
 achieve the standard at each receptor and a least cost strategy which might 
 be approximated either by source-specific emission regulations or a marketable 
 permit type of approach. 
 
 4.1.3 Criteria for Evaluation 
 
 4.1.3.1 Traditional Regulatory Approach - Rollback 
 
 4.1.3.1.1 Effectiveness - Rollback 
 
 The traditional approach is probably the most administratively feasible but 
 also the most difficult to enforce. The concept of rollback is well understood 
 by the state regulatory agencies. In most cases, it represents business-as- 
 usual and a minimum information requirement. 
 
 *If background concentrations from essentially uncontrollable sources were 
 appreciable, the percentage control requirement would increase proportionately. 
 
C-30 
 
 TABLE 2 
 
 NATIONWIDE NO x EMISSION ESTIMATES, 19 76 
 (10 metric tons/year) 
 
 Source Category 
 
 Transport at ion 
 
 • Highway vehicles 
 
 • Non-highway vehicles 
 
 Statonary Fuel Combustion 
 
 • Electric utilities 
 
 • Industrial 
 
 • Residential, commercial, and institutional 
 
 Industrial Processes 
 
 • Chemicals 
 
 • Petroleum refining 
 
 • Metals 
 
 • Mineral products 
 
 • Oil and gas production and marketing 
 
 • Industrial organic solvent use 
 
 • Other processes 
 
 NO 
 
 Percent 
 
 — X 
 
 10.1 
 
 44 
 
 (7.8) 
 
 (34) 
 
 (2.3) 
 
 (10) 
 
 11.8 
 
 51 
 
 (6.6) 
 
 (27) 
 
 (4.5) 
 
 (20) 
 
 (0.7) 
 
 (4) 
 
 0.7 
 
 2 
 
 (0.3) 
 
 (1) 
 
 (0.3) 
 
 (1) 
 
 (0) 
 
 (0) 
 
 (0.1) 
 
 (0) 
 
 (0) 
 
 (0) 
 
 (0) 
 
 (0) 
 
 (0) 
 
 (0) 
 
 Solid Waste 
 
 0.1 
 
 Miscellaneous 
 
 • Forest wildfires and managed burning 
 
 • Agricultural burning 
 
 • Coal refuse burning 
 
 • Structural fires 
 
 • Miscellaneous organic solvent use 
 
 0.3 
 
 (0.2) 
 
 (1) 
 
 (0) 
 
 (0) 
 
 (0.1) 
 
 (0) 
 
 (0) 
 
 (07 
 
 (0) 
 
 (0) 
 
 Total 
 
 23.0 
 
 100 
 
 SOURCE: "The National Air Monitoring Program: Air Quality and Emission 
 Trends," EPA, December 1977. 
 
C-31 
 
 From an enforcement standpoint, rollback has proven to be extremely diffi- 
 cult. When the cost of control is large, sources have an incentive to use 
 any tactic available to delay compliance. In such cases sources can, with 
 little difficulty, perform their own modeling studies and demonstrate that 
 they are not causing a violation of the standards. Rollback also complicates 
 the enforcement problem by requiring all sources to comply with a fixed 
 requirement regardless of their actual contribution. By requiring all 
 sources to comply with a fixed emission limitation, the number of sources 
 which must be controlled can be several fold to several orders of magnitude 
 greater than actually required to achieve the ambient standard. 
 
 4.1.3.1.2 Efficiency - Rollback 
 
 The question of efficiency is one of how much expense is required to meet a 
 fixed standard. In the case of a particularly ubiquitous pollutant, rollback 
 may prove to be a reasonable approximation of the degree of control required, 
 but if the pollutant is less ubiquitous, rollback may require control where 
 none is needed. In the case of the short-term NO2 standard, the use of 
 rollback increased total control costs an order of magnitude. Annual control 
 costs under rollback were estimated to be $254 million as compared with $21 
 million under the least-cost solution. 
 
 4.1.3.1.3 Equity - Rollback 
 
 Rollback usually requires sources of a similar nature to use the same type of 
 control equipment to achieve the required reduction in emissions. Also, to 
 the extent that sources comply with the regulation, the direct costs are 
 absorbed by the sources. Rollback, therefore, ranks high from an equity 
 perspective and this is one of the main reasons for its widespread use. 
 
 4.1.3.1.4 Political Feasibility - Rollback 
 
 The political feasibility of continued widespread use of rollback might be 
 questioned given current environmental conditions. This might be especially 
 true in the context of this case study because of the significant degree of 
 overcontrol imposed and the increasing recognition by the public that they 
 ultimately bear this unnecessary cost. 
 
 4.1.3.2 Incentive Approaches - Uniform and Variable Emission Charges 
 Two incentive approaches were considered which relied primarily on the market 
 to regulate behavior. The uniform emission charge set a charge rate equal to 
 the marginal cost of control of the highest cost individual source. The 
 concept is that all sources will control up to the point where the marginal 
 cost of an additional increment of control is less than the charge rate. 
 Since the charge rate must be high enough to insure that standards are met 
 at all receptors, the agency has no choice (assuming that it must comply with 
 the Clean Air Act requirement of no more than one violation per year) but to 
 set the tax at the highest marginal cost of control of sources contributing 
 to violations. 
 
 The variable charge rate recognizes that alternative categories of sources 
 have different marginal costs of control and that the charge rate need not 
 be applied uniformly to all sources to ensure attainment. Nine categories 
 of sources were defined and a charge rate set equal to the highest marginal 
 cost of control for any single source within each source category. 
 
C-32 
 
 In both cases, the charge rate was applied to all emissions from the source. 
 Therefore, to the extent that emissions reduction is less than 100 percent, 
 the source continues to pay a charge on its uncontrolled emissions. 
 
 4.1.3.2.1 Effectiveness - Incentives 
 
 Incentive approaches tend to have greater information- requirements than direct 
 regulation approaches, and consequently are less feasible from an administrative 
 viewpoint. However, they are viewed as being more readily and effectively 
 enforced . 
 
 In order to implement the charge scheme for N0 2 , a relatively sophisticated 
 multiple point and area source interaction dispersion model was created. The 
 degree of sophistication will vary significantly depending on the specific 
 pollutant to be controlled. In this case, the degree of sophistication was 
 high . This requirement is critical to the viable use of incentives . Few 
 agencies are capable of carrying out this form of analysis . In most cases , 
 they lack the necessary data and expertise. While agencies could develop 
 this capability they would find that implementing a pure charge system would 
 prove to be administratively more difficult and costly than use of traditional 
 approaches. Consequently, the advantages of a charge system must be large 
 enough to more than offset the increased administrative costs for the charge 
 system to be a preferable regulatory approach. 
 
 The more frequent argument in favor of emission charge systems is that they 
 significantly improve the enforcement potential . Sources under a charge system 
 would find it in their economic interest to comply because failure to comply 
 would result in higher total costs . The weakness in this argument is that in 
 order to implement a charge system, the enforcement authority must be able to 
 monitor emissions. Emission monitoring capabilities have improved enormously 
 in the past ten years, but even the most reliable systems require continual 
 calibration. The possibility of tampering or more likely, equipment failures 
 would make collection of emission charges exceedingly difficult. 
 
 The effectiveness of emission charges, i.e., incentive type approaches, need 
 not be any more or less certain than regulatory approaches. It is sufficient 
 to say that the relative benefits of either approach depend on the specific 
 circumstances of the action which the government is attempting to control. 
 In the case of N0 X , any emission charge scheme would tend to increase the 
 administrative burden while providing no clear benefit in the context of 
 enforceability . 
 
 4.1.3.2.2 Efficiency - Incentives 
 
 Emission charges have traditionally been supported by the economic profession 
 as the most reasonable method for equalizing costs and benefits . When unable 
 to measure benefits, a second best condition in favor of emission charges is 
 that they can be used to minimize costs for a given level of control . In 
 theory, these arguments have significant appeal, but in practice, they can 
 be difficult to realize. 
 
C-33 
 
 While arguments over the ability to equalize marginal costs and benefits have 
 centered on the question of measuring benefits, control costs can be equally 
 difficult to estimate. Costs per unit of control for identical sources can 
 vary widely. For any source they are a function of the capital equipment 
 which must be purchased, the operating rate of the plant, the age of the plant, 
 the company's cost of capital, and other variable factors. In instances where 
 the source of the pollution is independent of the ambient impact, many of these 
 factors may be safely ignored. The traditional argument in such cases is that 
 the charge rate can be varied until the standard is met. This, however, ignores 
 the fact that control technologies are lumpy investments . A given control 
 system may be capable of achieving a 20 percent level of control, but in order 
 to increase the collection efficiency to 40 percent, an entirely new system 
 must be purchased. Therefore, varying the tax rate could result in large cost 
 penalties which could be avoided if the charge rate were set correctly initially 
 Likewise, if ambient concentrations are associated with a specific source, 
 the charge rate must be set at a level to obtain control from the highest cost 
 source . 
 
 The use of a uniform charge system to control NO resulted in control costs 
 comparable to the traditional rollback approach, and, in addition, charge 
 revenues far in excess of the cost of control. Since NO2 concentrations were 
 directly related to individual sources, under the uniform charge system, the 
 charge rate had to be set equal to the highest marginal cost of control. The 
 costs to attain the standard at every receptor were estimated to be $239 
 million, as compared to $254 million under rollback. In addition, $468 million 
 in charge revenues were collected on uncontrolled emissions. The variable 
 charge system performed much better with direct annual control costs to 
 sources of approximately $98 million and charge revenues of $75 million, but 
 even in this case, the costs were significantly higher than the least-cost 
 solution of $21 million. 
 
 While neither system appeared to approximate the economists ' notion of least- 
 cost, both systems did offer control cost savings over the traditional approach. 
 Obviously, the variable charge system would have been preferred over the uni- 
 form system, but it adds additional administrative complexity and cost. The 
 complexity of the variable charge system, however, should not be overemphasized. 
 The control cost savings which were estimated to be $156 million would be more 
 than adequate to justify the more complicated approach and could readily be 
 funded with the $98 million in charge revenues. Only a small fraction of these 
 charge revenues would be required both to conduct the analysis and to implement 
 the requisite information program. 
 
 4.1.3.2.3 Equity - Incentives 
 
 The uniform charge system probably best represents the concept of equity which 
 most people hold. The sources are permitted to determine the degree of control 
 most appropriate to their particular situation and pay for emission discharges 
 at a uniform rate above the level of control they choose to implement. All 
 sources are treated equally, and therefore, equitably. Likewise, the costs 
 are borne directly by the source. All costs, including those for which no 
 measurable benefit is accruing to the public, are incurred directly by the 
 source . 
 
C-34 
 
 The variable charge scheme moves away from the concept of uniformity, but 
 continues to treat similar sources alike. Since similar sources may be 
 perceived to have the same type of ambient impact (although this is seldom 
 the case) , distinguishing by category may be viewed as consistent with the 
 definition of equity utilized in this paper. 
 
 4.1.3.2.4 Political Feasibility - Incentives 
 
 Obviously, since the study of economic approaches to control N0 X emissions 
 from stationary sources was requested by the Congress, one can presume that the 
 legislature is willing to consider alternative approaches to direct regulation 
 in this instance. The charge systems in this case offered some benefits in 
 terms of efficiency; they were considered to be more difficult from an 
 effectiveness perspective, and if structured on a uniform variable charge rate 
 framework, were similar to the traditional approach from an equity perspective. 
 The tradeoff therefore is clearly between effectiveness and efficiency which, 
 if the public is willing to accept more risk, would tend to favor such 
 approaches. 
 
 4.1.3.3 Mixed Strategies - Marketable Permits/Optimal Direct Control 
 Theoretically, a properly designed marketable permit system will result in a 
 least-cost solution to achieve any given level of control. Under this type of 
 system, the controlling agency issues permits which allow a specific amount of 
 pollution to be emitted within the control region. These permits might be 
 specified either in quantities of acceptable emissions or in terms of ground 
 level concentrations. The former would be acceptable with a particularly 
 ubiquitous pollutant, whereas if the impact is attributable to a single source, 
 the latter would be required. Once the permits have been issued, each source 
 in the region would be allowed to compete or bid for "emission rights." The 
 bid rate would be a function both of cost of control to the individual source 
 and the perceived value to other sources. Theoretically, an optimum would be 
 reached in which the cost of additional permits was just equal to the highest 
 marginal cost of control for each source impacting on each receptor within a 
 given control region. This result was approximated in the N0 X study through 
 the use of a heuristic integer programming algorithm. 
 
 This result might also be approximated through the use of direct regulations 
 that were based both on cost and ambient impact. Each source in a given area 
 would control to the lowest marginal control cost level at which the ambient 
 standard would be met. This might require different degrees of control at 
 each source, but the marginal cost for each source would be the same. In the 
 context of this study, the regulations to be imposed would have been derived 
 directly from the least-cost solution. 
 
 4.1.3.3.1 Effectiveness - Mixed Strategies 
 
 Clearly, any approach which requires the use of highly sophisticated modeling 
 approaches would create enormous administrative burdens on state and local 
 control agencies. Such a system would require that the agencies not only have 
 a comprehensive emission inventory, but also the capabilities to carry out 
 complex modeling studies. Neither of these conditions exists in most state or 
 local agencies. The ability to ensure that the objective was achieved therefore 
 would be highly uncertain. 
 
C-35 
 
 Likewise, depending on the degree to which sources were allowed to transfer 
 permits , the requirements for any given source might be changed over time 
 which would make enforcement difficult. Also, continuous monitoring would 
 be required to ensure that each source was in compliance. This issue has 
 already been discussed in the context of the uniform and variable charge 
 system. The difficulties in this instance are no less tractable. 
 
 4.1.3.3.2 Efficiency - Mixed Strategies 
 
 This system offers obvious benefits in the area of efficiency. Under the 
 least-cost solution, only 94 out of 797 sources were required to implement 
 controls. The cost of compliance and thus, attainment, was estimated to be 
 $21 million or less than 10 percent of the cost under rollback or the uniform 
 charge rate system. This result would obviously be extremely difficult to 
 approximate in a real world situation, but it does illustrate the significant 
 benefits which might result from more flexible strategies. The risk of not 
 attaining standards, however, might be much greater because of the adminis- 
 trative and enforcement problems that would be encountered. In addition, 
 the total cost of the program must recognize the increased cost to the public 
 for administration and enforcement capability. 
 
 4.1.3.3.3 Equity - Mixed Strategies 
 
 The most significant difficulty with this type of approach is that sources are 
 not treated equally. Firms would be differentially affected, depending on 
 their potential ambient impact and the site where they originally chose to 
 locate. Since firms generally have no control over the development patterns 
 which occur after they locate in a region, they would be penalized for decisions 
 over which they had no control. One of the major arguments that led to the 
 enactment of the noncompliance tax penalty in the State of Connecticut was 
 that firms should not be placed at a competitive disadvantage because firms 
 competing for the same market fail to comply with applicable regulations. 
 The marketable permit system, however, by definition discriminates among 
 sources on the basis of a totally different set of criteria and could therefore 
 result in significant economic dislocations . 
 
 4.1.3.3.4 Political Feasibility - Mixed Strategies 
 
 There is no doubt that a system of market permits or optimal direct control 
 would be a radical departure from the traditional means which the government 
 has used to control air pollution. It would also involve considerable risk 
 if administrative and enforcement requirements proved to be too complex. 
 The Congress has continually reiterated its desire to have continuous control 
 systems and move increasingly toward uniform requirements by source category. 
 Whether this is by conscious design, or whether the cost of such policies has 
 not been adequately represented, is a matter of speculation. The fact remains 
 that the requirements for regulations stated in terms of percentage removal, 
 the lowest achievable emissions rate (LAER) requirement, and the reasonably 
 available control technology requirement (RACT) , force the regulatory process 
 in the direction of uniform standards of performance independent of ambient 
 impact. The use of marketable permit systems or direct regulations which 
 are tied specifically to ambient impact might therefore rank low oh any index 
 of political feasibility. 
 
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 4.1.4 Summary - Nitrogen Dioxide Control 
 
 Table 3 attempts to summarize the conclusions of this case study. The ranking 
 of low, moderate, and high is an indication of the consistency of the approach 
 with the criteria. For example, low in the context of cost criteria under 
 rollback does not mean that costs are low, but rather that this strategy was 
 ranked low relative to the objective of minimizing total costs. 
 
 From this table, it is clear that no single strategy is clearly superior. Most 
 people would argue, however, that the criteria are not of equal value, and, 
 therefore, a clearly superior approach might result if we could obtain agreement 
 both in the rankings and the weights to be assigned to each criteria. Whereas 
 this statement in and of itself might be true, it is clear that the conditions 
 which are necessary and sufficient to obtain this result will, in all likelihood, 
 never exist. In the first place, the subjective rankings presented in the 
 table will never be fully agreed on, and even if they were, the assigning of 
 weights would vary enormously among the interested parties. The situation, 
 therefore, becomes one that is dependent on attempts to employ alternative 
 approaches in actual situations so that the subjective nature of the tradeoffs 
 which are implied when a particular strategy is selected can be evaluated on 
 a less subjective basis. 
 
 4.2 CONTROLLING EXPOSURE TO ASBESTOS IN THE WORKPLACE 
 
 Occupational exposure to airborne asbestos particles is a serious problem in 
 terms of the number of people affected, the severity of the ^potential health 
 impact, and the lack of information on actual risks. As such, it is a useful 
 case study for comparing the relative benefits of alternative forms of govern- 
 ment intervention. 
 
 4.2.1 Background 
 
 Asbestos is a term describing several naturally occurring silicate minerals. 
 There are currently over 3,000 different commercial uses of these minerals, 
 some of which have no suitable substitutes. Thus, the economic consequences 
 of reducing the use of asbestos are likely to be substantial. 
 
 On the other side, exposure to high levels of asbestos in the air has been 
 unambiguously linked to three types of cancer, though the interval between 
 exposure and onset of the disease is likely to be 10 or more years. What is 
 less certain is the lowest level which will elicit a health response. Despite 
 the tenfold lowering of the Occupational Safety and Health Administration's 
 standard for asbestos in recent years, no consensus has been reached on what 
 standard will ensure absolute protection. In addition, there are technical 
 limitations to the extent to which ambient asbestos concentrations can be 
 reduced. 
 
 4.2.2 Intervention Alternatives 
 
 4.2.2.1 Regulation - Asbestos 
 
 Clearly, the most effective way to protect workers from exposure is to prohibit 
 the emission of asbestos. As noted above, this is not technically possible and 
 such an action would force the closure of plants manufacturing asbestos-containing 
 products. Likewise, setting an ambient standard which required emission control 
 near the limit of technical feasibility would likely impose severe economic 
 burdens on many firms, resulting in the closure of some plants. In both cases, 
 the economic costs in terms of lost jobs and wealth would be substantial. A 
 
C-37 
 
 
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C-38 
 
 compromise position is to set the standard at an achievable level (given some 
 economic impact criterion) . This will reduce but not eliminate the health 
 risk. 
 
 Regulation applied uniformly is an equitable approach, as noted before. 
 Efficiency is only an issue if the form of the standard is considered. 
 Ambient standards allow firms to adopt the most cost-effective emissions 
 control strategy, while an emission standard will force the installation 
 of advanced controls on every source within the plant. In the case of 
 asbestos, however, the ambient standard is likely to be set so low that 
 advanced controls on all emissions sources would probably be necessary. 
 
 4.2.2.2 Incentives - Asbestos 
 
 The use of economic incentives can be justified on two grounds. First, 
 taxing asbestos emissions (or the subsequent ambient levels) would work to 
 encourage the adoption of more expensive and effective controls. The success 
 of such a tax scheme may be similar to that of an NO emissions tax, discussed 
 previously. 
 
 Second, revenues from a tax could be used to compensate victims of asbestos 
 exposure. Since the latency period for asbestos-induced cancers may be 
 measured in decades, it is difficult to attribute individual health responses 
 to specific instances or periods of exposure. A national fund, similar to the 
 structure of workmen's compensation, appears to be most appropriate in this 
 situation. Certainly, this approach is satisfying on equity grounds, since 
 it would involve cash flows from those causing to those suffering from the 
 problem. To further improve the equitability of application, payments from 
 asbestos-using firms could be weighted by the size of their work force (and 
 thus by the size of the potentially exposed population at each plant) . 
 
 4.2.2.3 Informational Approach - Asbestos 
 
 Because our knowledge of the health effects of asbestos exposure is far from 
 complete but continually growing, an informational /educational program for 
 current and prospective workers in asbestos industries would seem most 
 appropriate. Information should be presented in as specific and as quanti- 
 tative terms as the current state of knowledge will allow. Workers can then 
 decide whether the working conditions and the remuneration levels are suffi- 
 cient for them to accept the associated health risks. Such a program is 
 likely to be relatively inexpensive, and would not infringe on individual 
 freedoms. 
 
 4.2.3 Summary - Asbestos 
 
 From the discussion above, a mixed strategy combining elements of each of the 
 three major approaches would seem appropriate for the asbestos problem. 
 Regulation would assure that no one is exposed to obviously lethal doses of 
 asbestos. Economic incentives may simultaneously encourage research on the 
 control of asbestos emissions, and provide funds to compensate those workers 
 with asbestos-related health problems. Finally, an information program would 
 place workers in a better position to judge whether their employment is worth 
 the risks involved. 
 
C-39 
 
 4.3 AUTOMOBILE PASSENGER SAFETY 
 
 4.3.1 The Problem 
 
 The areas of automobile safety and passenger safety provide many examples of 
 government intervention. The objective of government intervention is to 
 protect the driving public and reduce the frequency and/or severity of acci- 
 dents and bodily injury. This might reduce personal discomfort, lost work 
 time, and hospitalization costs which might in turn stabilize or reduce 
 insurance premiums. The requirement that seat belts be standard in all cars 
 is an attempt to reduce bodily injury in the event of a collision. However, 
 this program is ineffective because most people do not use seat belts. It 
 has been proposed that passive restraint measures might be more effective. 
 
 Air bags are a passive restraint system designed to protect the front seat 
 passengers in a vehicle from bodily injury caused by a head-on collision. 
 They are readily available at present on several car models at a cost of 
 $300-$500. At present they protect only front seat passengers; however, 
 devices adapted to the rear seat may become available. This passive restraint 
 system provides protection comparable to that provided by a fastened seat 
 belt and shoulder harness in a head-on collision. However, the device may 
 provide little protection in some accidents (e.g., rear end or broadside 
 impacts) . 
 
 4.3.2 Alternative Approaches 
 
 4.3.2.1 Regulation - Auto Safety 
 
 The regulatory approach to the problem would require that all cars contain 
 air bags or that all passengers wear seat belts. Requiring the installation 
 of air bags would be effective in reducing bodily injury (assuming they 
 function properly) in some types of collisions. This program would raise 
 the price of every new car by $300-$500, imposing a tremendous cost on the 
 public. This must be considered inefficient since the device provides no 
 benefit greater than the fastened seat belts, which can be utilized at no 
 additional cost to consumers. Since the regulation would be applied 
 uniformly to all consumers and manufacturers it must be equitable. Politically 
 it may not be feasible because of its infringement on the individual's 
 freedom of choice. 
 
 Requiring that seat belts be worn at all times could be equally effective 
 in reducing bodily injury if it were enforceable. This might be realized 
 by revoking the license of any driver if the driver or passengers in the 
 vehicle were not wearing seat belts. This would be an economically effi- 
 cient approach since there would be virtually no cost for equipment, and 
 violations could be handled as traffic violations. Again, the political 
 feasibility of this approach might be limited because it infringes on the 
 individual's freedom of choice. 
 
C-40 
 
 4.3.2.2 Insurance Alterations - Auto Safety 
 
 Another strategy which utilizes aspects of the regulatory and incentive 
 approaches would be for the government to require that insurance premiums 
 or claims be adjusted according to use and disuse of seat belts. In this 
 program seat belt wearers would pay lower premiums than non-wearers, or 
 coverage might exclude injuries which would have been avoided had seat 
 belts been worn. Premiums could be developed from actuarial data. Indi- 
 viduals could still choose their habits, but those who select the more 
 dangerous habit would have to pay higher rates. Such a program readily 
 ties into the existing insurance market. 
 
 This program might be very effective. If individuals recognize clearly the 
 increased cost associated with disuse, they would probably use seat belts 
 more frequently. This program would also be fairly efficient in that there 
 would be little additional cost and the extra cost could be allocated 
 statistically to those likely to incur higher hospitalization costs. The 
 program might be considered equitable since individuals of the same type 
 (i.e., wearers, non-wearers) would be treated uniformly. Because the 
 premium distinction is based on objective statistical data, it should be 
 politically feasible to adopt such a practice. 
 
 4.3.2.3 Taxes - Auto Safety 
 
 The use of passive protective devices such as air bags might be induced by 
 imposing a tax on vehicles without them. This would be a market-based 
 incentive to use air bags which leaves the individual consumer with the 
 choice of buying air bags or paying the tax. 
 
 The effectiveness of the tax would depend on its level. If set above the 
 price of air bags, everyone would select air bags. If the tax were below 
 the price of air bags, fewer people would buy them. If the program stimu- 
 lated the purchase of air bags, it might be effective in reducing bodily 
 injury. However, it would not in any way increase the use of seat belts. 
 The program could be very inefficient since the costs could be substantial 
 and there would be no safety benefits to those who pay the tax or those who 
 wear seat belts. The inequity here is to those who wear seat belts and 
 receive no safety benefit for their expense. 
 
 4.3.2.4 Subsidies - Auto Safety 
 
 It would be possible for the government to subsidize the installation of air 
 bags in order to reduce injuries in automobile accidents. Such a program 
 might be justified because all drivers are penalized for the carelessness of 
 some in the form of universally high insurance premiums. Seat belt wearers 
 pay, directly or indirectly, for the hospitalization costs of those who do 
 not wear seat belts. Thus they too might benefit from a program which 
 emphasizes passive restraints. 
 
 A subsidy program would be effective — both administratively feasible and 
 enforceable. The program would be more costly to society than the use of 
 seat belts, but efficiency might be judged by comparing the aggregate 
 investment in air bags with the avoided expense of physical injury. This 
 program would be equitable in that all individuals are treated uniformly. 
 
C-41 
 
 4.3.2.5 Information and Education - Auto Safety 
 
 This approach would entail distributing clear information describing the risks 
 and benefits of driving with no protection, with seat belts, and with air bags. 
 The types of protection, advantages and disadvantages, and cost of each action 
 would be made clear. The individual then would determine the acceptable level 
 of risk and determine his/her own action. 
 
 This would be a very easy program to implement politically and administratively. 
 Whether it would be effective would depend on the voluntary response of the 
 public. An individual might easily conclude that seat belts provide good 
 protection at no expense and subsequently forget to use them. The program 
 would be very efficient since individual consumers would opt to minimize their 
 costs. The equity here is that each individual would determine an acceptable 
 risk and behavior. All individuals selecting the same type of protection 
 would bear the same cost. The program would be politically feasible since 
 it hinges on the individual's freedom to act and accept risks. 
 
 4.3.3 Summary - Auto Safety 
 
 This discussion is to demonstrate that approaches other than strict regulation 
 might achieve the objective of reducing injuries. The major difficulty in 
 solving this problem is that the least-cost solution (use of seat belts) is 
 ineffective because it depends on a voluntary action by the public which is 
 often not taken. The situation might be remedied by encouraging the desired 
 action (use of seat belts or purchase of air bags) through the distribution 
 of information, economic incentives, or regulation. The effectiveness of 
 each approach depends on the mood of the public, its willingness to accept 
 risk, and the political difficulties of legislating individual behavior. 
 
C-42 
 
 5. SYNOPSIS 
 
 This paper has attempted to address an extremely complex problem, hopefully 
 developing a framework that is useful for discussing alternatives to direct 
 regulation. The alternative mechanisms for government intervention developed 
 and the methods for their evaluation apply most directly to regulatory 
 issues involving health, safety, and the environment. The dimensions of 
 externalities and personal welfare involved in this subset of government 
 regulation set it apart to some extent from other areas. For example, many 
 agricultural programs are targeted to assure stable, long-term domestic 
 supplies of farm commodiites which, instead of addressing externalities, 
 deal more with sectional economics and national supply security. The 
 dimension of social externality that exists in the regulation of health, 
 safety, and the environment adds the confounding dimension of measuring 
 non-dollar denominated benefits, but at the same time offers the opportunity 
 of several possible regulatory mechanisms (as outlined in Section 2 of this 
 paper) . Although some of these mechanisms are not applicable in other 
 regulatory arenas (information transfer does nothing for grain stockpiling) , 
 the tradeoff between direct regulation and reliance on incentive-based market 
 mechanisms is broadly applicable in other regulatory arenas. More importantly, 
 the criteria of evaluation (effectiveness, efficiency, and equity) readily can 
 be applied to most regulatory programs. 
 
 Over the past decade, the bulk of new regulation nas dealt with issues of 
 externalities. This paper has shown that alternative regulatory approaches 
 may have merit in dealing with externality problems. More importantly, it 
 has shown that alternatives are not per se better than direct regulation, 
 that alternatives perhaps more so than direct regulation must be evaluated 
 for their ability to deal with specific cases or narrowly defined generic 
 issues . 
 
 Solutions to the general problem of regulation — that of public sentiment which 
 has evolved toward a notion of excessive or inefficient regulation — are not 
 clearly illuminated by these findings. What is the proper approach to this 
 problem? 
 
 A bottom up approach would focus on individual actions taken or proposed by 
 regulatory agencies. Such an approach might require any agency to consider 
 explicitly alternative forms of regulation and provide a comparative analysis 
 of why a particular approach was selected. Some of the alternatives and 
 criteria discussed in Sections 2 and 3 might be useful for this purpose. 
 
 A top down approach might be selected in which some recognition is given to 
 the fact that we are always dealing with limited resources and not all social 
 ills can be remedied simultaneously. Such an approach would have to establish 
 a risk/cost/benefit framework in which those social ills which represent a 
 "clear and present" danger were given priority. This might mean sacrificing 
 noise abatement standards in favor of a more aggressive toxic substances program 
 
C-43 
 
 Alternatively, these two approaches could be combined. An oversight 
 committee would be responsible for establishing priorities and the 
 agencies would be responsible for insuring that alternatives to regu- 
 lations be considered. 
 
 In an idealized framework, any or all of these approaches might assist in 
 modulating the impact of current regulatory programs. This, however, ignores 
 the fact that many agencies, because of their legislative mandates, do not 
 have the flexibility either to prioritize their programs or to consider 
 alternatives. In order to implement either of the above approaches, a 
 significant reshaping of the laws governing these agencies would be required. 
 
 One of the most significant conclusions of this report may be that it is 
 difficult to see how the many Federal, state, and local legislatures might 
 be persuaded to restate the laws which they have enacted. The problem rests 
 with the fact that billions of dollars are spent annually attempting to 
 identify potential problems, while little or no basic research is performed 
 on how these problems might be mitigated at the least cost to society and 
 with a minimum of disruption of the social fabric. 
 
 Few, if any, studies are performed on alternatives to regulation. The absence 
 of research in this area leads us to underestimate the true cost of regulation. 
 To the extent that the true costs of a commodity are understated, society--the 
 consuming public — will demand more than it can afford. 
 
 Rectifying this situation will not be an easy task. Literally hundreds of 
 regulations are passed every year which have both direct and indirect impacts 
 on the economy. Since many of these regulations are directed at social 
 externalities, the tools which have been created to deal with the economic 
 consequences of government actions cannot adequately simulate the impact. 
 It is, however, only through these mechanisms that we can hope to understand, 
 or at least appreciate the magnitude of the problem with which we are dealing. 
 Attempts to prioritize on the basis of risk/cost/benefit and to consider 
 alternatives to regulations should assist in this process. 
 
C-44 
 
 ANNOTATED BIBLIOGRAPHY OF THE LITERATURE 
 
 The sample of research articles that follow allow a number of observations 
 on trends in research on alternative approaches to regulation. From this 
 sample, a number of highlights may be presented as follows. The observa- 
 tions relate only to the limited sample, which, though probably represent- 
 ative of the whole, is not necessarily representative of all aspects of 
 research in this area. 
 
 • Most research on alternative approaches to regulation has been 
 theoretical, rather than empirical. Problems stemming from ac- 
 tual conditions have thus not yet been fully taken into account. 
 
 • Virtually all articles have dealt with approaches to controlling 
 environmental pollution, particularly water pollution. Conclu- 
 sions reached in this area would not necessarily hold for differ- 
 ent applications such as approaches for achieving health or 
 safety. 
 
 • Virtually all articles have focused on a comparison or evaluation 
 of regulatory standards, tax, or subsidy approaches. There were 
 no assessments in the sample on informational approaches. 
 
 • The articles represent ongoing discussion among primarily academic 
 economists. There have been frequent cross-references between 
 works and debates over assumptions and conclusions. This has led 
 to a progression in knowledge as previous assertions have been 
 shown inaccurate and important assumptions have been identified. 
 
 • Although there was not full agreement among authors, in general 
 the authors concluded that tax approaches would be the most effi- 
 cient approaches . Regulatory approaches were seen as having good 
 administrative feasibility but numerous inefficiencies. While 
 subsidy approaches were equated with tax approaches in terms of 
 potential for efficiency, they were rated lower in terms of equity 
 and were found to be administratively infeasible in the form that 
 would have yielded its highest efficiency. Mixed approaches were 
 sometimes found to offer desirable performance opportunities. 
 
 • Although such generalizations may be made, the articles in aggre- 
 gate have pointed out enough exceptions and special assumptions 
 
C-45 
 
 or conditions that it appears no fixed rule can be followed in 
 applying alternative approaches. Further research is needed 
 to assess the value of alternatives in specific situations and, 
 in particular, to take into account factors of enforceability 
 and political feasibility. 
 
 The following twenty- two annotated references form a subset of the references 
 listed in the Bibliography. 
 
 Adar, Zari and James M. Griffin. "Uncertainty and the Choice of Pollution 
 Control Instruments." Journal of Environmental Economics and Management , 
 October 1976. 
 
 Compares taxes, regulations, and marketable permits as applied to environ- 
 mental control. 
 
 The value of the approaches is discussed when the marginal damage or 
 marginal control cost functions are subject to uncertainty. The article 
 concludes that uncertainty in the marginal damage function has no effect 
 on the choice of optimal approaches. It concludes that uncertainty in 
 the marginal cost of control function does have an effect on the choice 
 of optimal approaches. When the marginal cost of control function is 
 uncertain, a tax approach will be desirable if the marginal damage 
 function is very price elastic. This is thought to be the case for SO2 
 emissions. When the marginal cost of control function is uncertain, 
 permits or regulations will be desirable if the marginal damage function 
 is very price inelastic. The welfare effects of permits and regulations 
 will differ, however. 
 
 Amihud, Yakov. "The Efficiency of Taxes and Subsidies in Reducing Emissions 
 by a Risk-Adverse Firm." Kyklos . 1976. Page 113. 
 
 The article deals with tax and subsidy approaches to pollution control. 
 
 The author notes that some economists feel that in the short run there 
 is no difference between a tax and subsidy and that differences occur 
 only over the long run. The author disagrees and argues that even in 
 the short run, firms facing uncertainty and with risk- averse strategies 
 may react differently to taxes or subsidies. A subsidy, he contends, 
 will tend to lead to less reduction in emissions and may in some cases 
 lead to increased emissions. 
 
C-46 
 
 Baumol, W.J. and W.E. Oates. "The Use of Standards and Prices for Pro- 
 tection of the Environment." Swedish Journal of Economics . 1971. 
 Pages 42-54. 
 
 The article deals with taxes, subsidies, and standards in the area of 
 pollution control. 
 
 Unlike many other theoretical studies, which seek pareto optimal or 
 efficient solutions to the problem of pollution and resource allocation, 
 this study proposed that arbitrary standards of environmental quality 
 be adopted as targets and that a set of effluent charges be imposed 
 to meet the standards of environmental quality. The authors acknow- 
 ledge that the outcome will not be pareto optimal but feel it will 
 have the lowest costs for attaining specified pollution reductions. 
 
 Boyd, J. Hayden. "Pollution Charges Income and the Costs of Water Quality 
 Management." Water Resources Research . August, 1971 
 
 The article discusses tax and direct provision approaches to pollution 
 control in a river basin. 
 
 The author discusses the imbalance between the optimal level for pollu- 
 tion fees if set as an incentive to reduce pollution or if set as a 
 revenue-raising device to pay for the optimal level of investment in 
 increasing the waste assimilative capacity of a river basin. 
 
 A, tax set at the marginal cost of pollutants will yield more than is 
 needed for river assimilative capacity augmentation. Similarly, if 
 the tax were set just high enough to pay for what is needed to optimally 
 augment river assimilative capacity, it will not be high enough to bring 
 about optimal pollution reduction and thus not high enough for economic 
 efficiency. 
 
 Bramhall, D.F. and E.S. Mills. "A Note on the Asymmetry between Fees and 
 Bribes." Water Resources Research . July-September, 1966. 
 
 The article deals with taxes and subsidies to control pollution. 
 
 The authors note two works that have reached conclusions on the differ- 
 ences between tax and subsidy approaches. The first is alleged to have 
 said that the main difference between the two approaches is equity, not 
 efficiency. The second is alleged to have said that the only differ- 
 ence in terms of efficiency will take place if subsidies are misapplied 
 Ci.e., if they are given for the difference between controlled levels 
 and uncontrolled levels of emissions as they are, rather than as they 
 would have been without the policy). A subsidy for not polluting 
 obviously creates an incentive to raise initial pollution levels to 
 gain a larger subsidy. 
 
C-47 
 
 The authors disagree with both studies, however. They contend that 
 both studies reach inaccurate conclusions because they look only at 
 short run conditions. In the long run, taxes will lower corporate 
 profits while subsidies will increase profits. The difference in 
 profits will lead to differences in exit and entry from the industry 
 and thus through competition to differences in prices. Hence, there 
 is a long run efficiency difference between tax and subsidy approaches 
 even when applied accurately to avoid initial overpollution. . 
 
 Bramhall, David H. and Edwin S. Mills. "Alternative Methods of Improving 
 Stream Quality: An Economic and Policy Analysis," Water Resources 
 Research . Third Quarter, 1966. 
 
 This article compares the costs of wastewater treatment and low flow 
 augmentation for environmental quality control in river basins. It 
 also assesses the comparative strengths of regulatory, tax, and sub- 
 sidy approaches to wastewater treatment by the private sector. 
 
 The article cites views expressed by Allen V. Kneese in The Economics 
 of Regional Water Quality Management , (Johns Hopkins Press, 1964). The 
 authors argue that subsidies would be difficult to administer because 
 there would be little possibility in practice to know what the pollution 
 levels would have been without the subsidies. The authors see three 
 advantages for taxes over regulatory standards. These are: 1) taxes 
 induce the greatest abatement of pollution where cheapest to do so, 
 
 2) taxes would allow investment decisions to be made decentrally by 
 firms rather than by the central pollution control authority, and 
 
 3) taxes would create an ongoing incentive for firms to look for 
 technologies to lower discharges further. Yet, the authors advocate 
 a combination or mixed strategy in which taxes are supplemented by 
 regulatory standards where proper tax levels would lead to too complex 
 a schedule or where taxes were being irrationally ignored, especially 
 if public health were endangered. 
 
 Byrne, R.F. and M.H. Spiro. "On Taxation as a Pollution Control Policy." 
 Swedish Journal of Economics . March, 1973. 
 
 This article deals with a tax approach to pollution control. 
 
 The authors attempt to demonstrate that a tax approach might not be 
 efficient under certain conditions that they feel are common -- when 
 firms have a number of production processes of fixed proportion, con- 
 stant returns to scale nature. 
 
C-48 
 
 Fishelson, Gideon. "Emission Control Policies Under Uncertainty." 
 Journal of Environmental Economics and Management . October, 1976. 
 
 Compares tax and regulatory approaches for air pollution control. 
 
 The article concludes that when the marginal benefits curve of air 
 quality is steeper than the marginal costs curve, regulations will 
 give lower costs. If the marginal costs curve is steeper than the 
 marginal benefits curve, taxes will give lower costs. These con- 
 clusions were based upon an assumption of linear marginal benefits 
 and marginal costs functions. They will not necessarily hold under 
 different conditions, i.e., non-linearity. 
 
 On page 196, the article states: "The moral is obvious. The main 
 effort is to be put into the study of the pollution abatement activ- 
 ities and costs, before resorting to any specific policv." 
 
 Apparently, this statement reflects the fact that the specific condi- 
 tions in any given application may determine which approach would 
 be best, rather than allowing a single approach to be best for all 
 applications. * 
 
 Herzog, Henry W. "Economic Efficiency and Equity in Water Quality 
 Control: Effluent Taxes and Information Requirements." Journal of 
 Environmental Economics and Management . February, 1976. 
 
 Examines three tax approaches and a management system based on 
 equal percentage treatment for discharges into a river. Examines 
 empirical conditions for the Patuxent River in Maryland and assesses 
 the equity and efficiency of each approach. 
 
 The article found that information availability increased resource 
 efficiency significantly but not impressively. There, it concluded, 
 specific recommendations could not be made without further assess- 
 ments of the transaction, administrative, and information costs 
 of each approach. The article stated further that even less could 
 be- concluded on equity comparisons. 
 
 Johannesson, M. "Dynamic Aspects on the Use of Prices for Protecting 
 the Environment." Swedish Journal of Economics . June, 1972. 
 
 This article examines a tax approach to pollution control. 
 
 The author notes that while it is possible in theory for optimal 
 resource allocation to come about by an authority's first deter- 
 mining the optimal reductions to be made by firms and then setting 
 standards or taxes accordingly, in practice it would be difficult 
 to do so. 
 
C-49 
 
 The author investigates whether an iterative procedure would lead to 
 such an allocation under theoretical conditions. While finding that 
 it would, he notes some factors that were not considered in his model 
 and which might bear upon the outcome and which would use further 
 study. 
 
 Kneese, Allen V. and Karl-Goran Maler. "Bribes and Charges in Pollution 
 Control: An Aspect of the Coase Controversy." Natural Resources 
 Journal . October, 1973. 
 
 Examines tax, subsidy, and mixed tax-subsidy approaches for pollution 
 control. 
 
 The article reviews the comparison between taxes and subsidies made 
 previously in the literature. It notes some arguments claiming 
 that there are differences between taxes and subsidies. 
 
 The article contends that pure tax, pure subsidy, and mixed tax- 
 subsidy approaches can all be made equivalent in terms of allo- 
 cative effects. In particular, the problem of entry and exit can 
 be dealt with by extending the system of taxes or subsidies in 
 certain manners to firms that enter or leave the polluting industry. 
 
 The authors note that nonetheless a subsidy approach that would 
 yield optimal resource allocation would be unworkable in practice. 
 They show the ability of a subsidy to reach optimal resource allo- 
 cation in theory to point out in contrast how different existing 
 subsidy programs are (especially the municipal wastewater treat- 
 ment subsidy program) . They thus concur that in practice a Pigovian 
 tax approach still seems the best approach. 
 
 On page 712, the authors- conclude that "... in terms of attaining 
 efficiency in an actually functioning program, the results of more 
 than a decade of theoretical and empirical research since Coase 's 
 article appear to point right back to the Pigovian approach-" 
 
 Kraus, M. and H. Mobring. "Taxing Pollutees: A Comment." Kyklos 
 1974. Page 884. 
 
 The article deals with a tax approach to pollution control. 
 
 The article notes that one economist has argued that achieving 
 efficiency through a tax approach would require taxing both those 
 who impose pollution and those who receive pollution. The article 
 examines this argument and concludes that the other economist 
 CSerge-Christophe Kolm in "Les Pollues Doivent-ils Payer?" 
 Kyklos , 1973, page 322) reached his conclusion by using a tax 
 
C-50 
 
 other than a Pigovian tax. A Pigovian tax, the article claims, will 
 lead to efficiency if applied only to the imposers of externalities. 
 
 Krier, James E. and W. David Montgomery. "Resource Allocation Information 
 Cost and Form of Government Intervention." Natural Resources Journal . 
 T anuary, 1973. 
 
 Examines regulatory and incentive approaches in relation to environ- 
 mental quality. 
 
 The article discusses the relationship between concepts of property 
 rights by societies and the forms of intervention by governments. 
 
 The authors assert that as a resource becomes more valuable, it be- 
 comes more economical to adopt forms of government intervention 
 that have higher information costs so as to cut down on the al lo- 
 cative inefficiencies (since these increase also as the resource 
 becomes more valuable) . 
 
 Uniform regulatory approaches are seen as having low information 
 costs because of their simplicity while pricing approaches have 
 higher information costs but offer efficiency gains. Still, the 
 information costs of pricing approaches are lower than the infor- 
 mation costs for regulatory approaches that would yield allocative 
 efficiency (i.e., case specific standards for each source). 
 
 The authors also note some reasons, however irrational, why pricing 
 approaches have gained little acceptance. These include a public 
 disinterest in theory, the influence of narrow special interest 
 groups, and shortcomings in the government policymaking process. 
 
 Mar, B.W. "A System of Waste Discharge Rights for the Management of 
 Water Quality." Water Resources Research . 1971. Pages 1079-1086. 
 
 This article examines the application of marketable permits to 
 pollution control in water basins. 
 
 The author examines existing policy on water discharge rights. He 
 notes the information and administrative problems that regulations 
 involve. The author advocates a system of marketable permits for 
 discharges into river basins. To accommodate discharges by small 
 polluters, the author suggests that some permits be sold to utilities 
 who in turn will sell smaller amounts of discharge rights to small 
 polluters or individuals. 
 
C-51 
 
 Marshall, Harold E. and Rosalie T. Ruegg. "Cost Sharing to Induce 
 Efficient Techniques of Abating Wastewater Pollution." Journal of 
 Environmental Economics and Management . December, 1975. 
 
 Analyzes existing cost sharing (i.e., subsidy) programs for waste- 
 water treatment grants administered by the EPA under the 1972 
 Amendments to the Federal Water Pollution Control Act. 
 
 The article identifies and measures biases that lead to efficiency 
 losses in resource allocation and technology choice. The article 
 also develops a variant for cost sharing (i.e., making the percent- 
 age subsidy the same for all techniques and aspects of costs to 
 avoid distortions) that would eliminate the bias. It also notes 
 some practical variants that would approximate the condition of 
 neutral subsidy between technologies even though perfect neutrality 
 might not be attainable in practice. 
 
 Page, Talbot. "Failure of Bribes and Standards for Pollution Abatement." 
 Natural Resources Journal . October, 1973. 
 
 Examines subsidies, taxes, and regulatory standards for pollution 
 control. 
 
 The article reviews the literature that has concluded that subsidies 
 and taxes are different only in their distributive effects and that 
 regulations and taxes are similar if regulation is set optimally. 
 
 The article examines what happens when free entry and exit are con- 
 sidered and what happens to equity when controls are implemented. 
 
 The article concludes that regulatory standards are made inefficient 
 by opportunities for entry and exit of firms. Entry and exit 
 opportunities also make subsidies inefficient. Changes in the sub- 
 sidy approach would also do little to overcome these problems. The 
 tax system is found best in terms of efficiency and equity. 
 
 Rose. M. "Market Problems in the Distribution of Emission Rights." 
 Water Resources Research . 1973. Pages 1132-1144. 
 
 The article discusses a marketable permits approach and notes some 
 implications for optimal direct regulation. 
 
 The author analyzes a system of marketable permits and argues that 
 given sufficient knowledge of the bidding strategies of firms, the 
 pollution control authority could infer firms' marginal treatment 
 cost functions from bidding behavior and then may be able to imple- 
 ment an optimal solution of regulatory discharge standards for each 
 firm. 
 
C-52 
 
 Russell, C.S. and IV. J. Vaughan. "On Taxation as a Pollution Control 
 Policy: A Comment." Swedish Journal of Economics , Number 2, 1975, 
 
 This article deals with tax and regulatory approaches to pollution 
 control. The emphasis is on theoretical analysis but with refer- 
 ence to conditions that may be found in actual practice. 
 
 The authors note the condition of fixed proportions mentioned by 
 Byrne and Spiro and contend that it is not likely to occur often 
 in practice. 
 
 The authors conclude that effluent charges will lead to least cost 
 situations in pollution control though they will not lead to cer- 
 tainty on the level of pollution reduction when the pollution con- 
 trol authority lacks information on the marginal cost reduction 
 or damage schedules for firms. If the marginal cost reduction 
 curve shifts exogeneously, effluent charges will still lead to 
 least cost situations. A regulatory approach, they argue, will 
 guarantee the outcome in terms of pollution reduction but not the 
 cost. If the marginal cost reduction curve shifts exogeneously, 
 effluent charges will still lead to least cost situations. A 
 regulatory approach, they argue, will gurantee the outcome in 
 terms of pollution reduction but not the cost if the marginal 
 cost reduction curve shifts exogenous ly. 
 
 The authors note further that the real world is not static and not 
 fully described by static models. The choice between taxes and 
 regulations is not as clear as once thought. It is a choice 
 between one imperfect option and another. They note also the 
 need for regulatory standards when toxics capable of causing 
 harm through short-term exposures are involved. 
 
 Smith, V. Kerry. "A Note on Effluent Charges and Market Structure." 
 Journal of Environmental Economics and Management . April, 1976. 
 
 Examines efficiency from approaches in the presence of product 
 market distortions. 
 
 The article concludes that when there is more than one external 
 diseconomy, the number of policy instruments needed to achieve 
 optimal resource allocation will be at least equal to the number 
 of external diseconomies that are to be corrected. 
 
 In the case of pollution and product market distortions, two 
 approaches -- e.g., an effluent tax and a product subsidy -- will 
 be needed for efficiency. The article notes, also, that equity 
 considerations may arise through the impact of pollution control 
 approaches on the prices of products that are consumed by different 
 classes of consumers. 
 
C-53 
 
 Taylor, C. Robert. "A Regional Market for Rights to Use Fertilizer as 
 a Means of Achieving Water Quality Standards." Journal of Environ- 
 mental Economics and Management . September, 1975. 
 
 Examines one possible arrangement of marketable permits for fertilizer 
 use to control water pollution. Compares this with a tax approach on 
 fertilizer and examines empirical evidence for nitrogen fertilizer in 
 Illinois. 
 
 The article concludes that the effects of marketable permits and tax 
 approaches would be the same if no permits were purchased by nonusers 
 of fertilizer. It notes differences, however: 
 
 • There are different options for nonusers to influence the 
 amount of fertilizer used. 
 
 • The effects of adapting the approaches to year-to-year 
 changes in economic conditions and social values are 
 different. 
 
 • The permit approach allows more precise and certain achieve- 
 ment of control over the total amount of fertilizer applied. 
 
 In addition, the article notes that regional programs would face 
 problems of bootlegging for any approach involving permits or taxes. 
 A national program, though, would not. 
 
 On page 17, the article states: "The cost of various enforcement 
 schemes and expected compliance for the tax and rights (permits) 
 policies as well as other relevant policies need to be determined 
 so that the net social benefits of each policy can be computed. 
 It appears to this author that such research will have to be based 
 more on speculation and judgement than on objective economic 
 research. " 
 
 Nonetheless, the article notes, a rights (permits) policy would 
 cost less than a per acre restriction (a favorite proposal among 
 some administrators) to enforce. 
 
 Tietenberg, T.H. "Controlling Pollution by Price and Standard Systems 
 A General Equilibrium Analysis." Swedish Journal of Economics . 
 June, 1973. 
 
 The article deals with tax and regulatory approaches in what is 
 generally a theoretical analysis. 
 
C-54 
 
 The author contends that the argument by Baumol and Oates for adoption 
 of a standards and prices system depends on the existence of a parti- 
 cular functional relationship between emissions and pollution concen- 
 trations that is not found in actual environmental situations. For 
 example, it is noted that the damage from one unit of pollution is 
 different if emitted from a source downstream from a community than 
 if emitted from a source upstream from a community. 
 
 The author proposed a certain generalization of the Baumol and Oates 
 proposal that takes into account his objections while retaining some 
 of the advantages of the original proposal. 
 
 Yohe, Gary W. "Substitution and the Control of Pollution: A Comparison 
 of Effluent Charges and Quality Standards Under Uncertainty." Journal 
 of Environmental Economics and Management . December, 1976. 
 
 Examines taxes and subsidies in relation to pollution control. 
 
 The article finds three sources of asymmetry between the impacts of 
 tax and subsidy approaches. These are: 
 
 • In the short run, it is difficult to determine the proper 
 reference point for subsidies because polluters have an incen- 
 tive to increase initial pollution levels to qualify for 
 greater subsidies. 
 
 • In the long run, dealing with exit from and entry into an 
 industry is difficult in the case of subsidies. 
 
 • Because subsidies will form a discontinuous function, they 
 will make the marginal cost curve for firms discontinuous. 
 In the long run, this will lead to greater production of the 
 product and thus of pollution than would a tax approach. 
 
C-55 
 
 BIBLIOGRAPHY 
 
 This bibliography lists a number of further references on alternative 
 approaches to regulation. It is not intended to be comprehensive but 
 lists references that account for a large portion of the research pub- 
 lished in recent years on this subject. 
 
 Adar, Zari and James M. Griffin. "Uncertainty and the Choice of Pollution 
 Control Instruments." Journal of Environmental Economics and Management , 
 October 1976 . 
 
 American Enterprise Institute. Consumer Class Actions . 1977. 
 
 . Waterway User Charges . 1977 • 
 
 Amihud, Y. "The Efficiency of Taxes and Subsidies in Reducing Emissions 
 by a Risk-Averse Firm." Kyklos . 1976- 
 
 Anderson, D.R. "The National Flood Insurance Program -- Problems and 
 Potential." Journal of Risk Insurance . December 1974. 
 
 Arnold, D.F. and E. Petri. "Cost Reductions Through Tax Provisions for 
 Pollution Control Facilities: What the R§D Men Should Know." English 
 Economist . July-August 1974. 
 
 Baumol, W.J., S. Rose-Ackerman, J.W. Sawyer, Jr., and D.W. Henderson. 
 The Uncertain Search for Environmental Quality . New York : The Free 
 Press, 19 74. 
 
 and S.A. Batey-Blackman. "Emissions Permits vs. Effluent Charges.' 
 
 Unpublished mimeo, 1978. 
 and W.E. Oates . Economics, Environmental Policy and Quality of 
 
 Life . Englewood Cliffs, New Jersey: Prentice Hall, forthcoming. 
 and W.E. Oates. The Theory of Environmental Policy. Englewood 
 
 Cliffs, New Jersey: Prentice Hall, 1975. 
 
 and W.E. Oates. "The Use of Standards and Prices for Protection 
 
 of the Environment." Swedish Journal of Economics , 73, 1971, pp. 42-54. 
 
 Boyd, J. Hayden. "Pollution Charges Income and the Costs of Water Quality 
 Management." Water Resources Research . August 1971. 
 
 Bramhall, D.F. and E. S. Mills. "A Note on the Asymmetry Between Fees and 
 Bribes." Water Resources Research , July-September 1966. 
 
 "Alternative Methods of Improving Stream Quality: An Economic 
 
 and Policy Analysis." Water Resources Research . Third Quarter, 1966 
 
 Buchanan, J.M. and G. Tullock. "Polluters' Profits and Political Response: 
 Direct Controls Versus Taxes." American Economic Review. March 19 75. 
 
C-56 
 
 Byrne, R.F. and M. H. Spiro. "On Taxation as a Pollution Control Policy." 
 Swedish Journal of Economics . March 1973. 
 
 Calabresi, G. "The Decision for Accidents: An Approach to Nonfault 
 Allocation of Costs." Harvard Law Review . 1965. 
 
 Chelius, James Robert. Workplace Safety and Health: The Role of Workmen's 
 Compensation . American Enterprise Institute. 1977. 
 
 Clotfelter, C.T. "Public Services, Private Substitutes, and the Demand 
 for Protection Against Crime." American Economic Review . December 1977. 
 
 Dales, J.H. Pollution, Property and Prices . Toronto: University of Toronto 
 Press, 1968. 
 
 DeLucia, R.J. An Evaluation of Marketable Effluent Permit Systems . 
 Washington: Office of Research § Development, Environmental Protection 
 Agency, 1974. 
 
 Dewees, D.N. and W.A. Sims. "The Symmetry of Effluent Charges and Subsidies 
 for Pollution Control." Canadian Journal of Economics . May 1976. 
 
 Dorcey, A.H. "Effluent Charges, Information Generation and Bargaining 
 Behavior." Natural Resources Journal . January 1973. 
 
 Elliott, R.D. "Economic Study of the Effect of Municipal Sewer Surcharges 
 of Industrial Wastes and Water. Usage ." Water Resources Research . October 
 1973. 
 
 Ferrar, I. A. "Progressive Taxation as a Policy for Water Quality Manage- 
 ment." Water Resources Research . June 1973. 
 
 Fishelson, Gideon. "Emission Control Policies Under Uncertainty." Journal 
 of Environmental Economics and Management . October 1976. 
 
 Freeh, H.E. III. "Pricing of Pollution: The Coase Theorem in the Long Run." 
 Bell Journal of Economics and Management Science . Spring 1973. 
 
 Freeman, A. Myrick III and Robert H. Haveman. "Clean Rhetoric and Dirty 
 Water." The Public Interest . Summer 1972. 
 
 Goldie, L.F. "Amenities Rights -- Parallels to Pollution Taxes." Natural 
 Resources Journal . April 19 71. 
 
 . "Pollution and Liability Problems Connected with Deep-Sea 
 
 Mining." Natural Resources Journal . April 1972. 
 
 Griffin, J.M. "An Econometric Evaluation of Sulfur Taxes." Journal of 
 Political Economy . July/August 1974. 
 
 Herzog, Henry W. "Economic Efficiency and Equity in Water Quality Control: 
 Effluent Taxes and Information Requirements." Journal of Environmental 
 Economics and Management . February 1976. 
 
 Jackson, R. "Corrective Taxes and Pollution Control." Nebraska Journal 
 of Economics and Business. Winter 19 72. 
 
C-57 
 
 Johannesson, M. "Dynamic Aspects on the Use of Prices for Protecting the 
 Environment." Swedish Journal of Economics . June 1972. 
 
 Kneese, A.V. and B.T. Bower. Managing Water Quality: Economics, Technology , 
 Institutions . Baltimore: Johns Hopkins University Press for Resources 
 for the Future, 1968. 
 
 and Karl-Goran Maler. "Bribes and Charges in Pollution Control: 
 
 An Aspect of the Coase Controversy." Natural Resources Journal . 
 October 1973. 
 
 and C. Schultze. Pollution, Prices and Public Policy. Washington: 
 
 Brookings Institution, 1975. 
 
 Kraus, M. and H. Mohring. "The Role of Pollutee Taxes in Externality 
 
 Problems." Economica . May 1975. "Taxing Pollutees: A Comment." Kyklos , 1974. 
 
 Krier, James E. and W. David Montgomery. "Resource Allocation Information 
 Cost and the Form of Government Intervention." Natural Resources 
 Journal . January 19 73. 
 
 Lave, L.B. and E.P. Seskin. Air Pollution and Human Health . Baltimore: 
 Johns Hopkins University Press for Resources for the Future, 1977. 
 
 Lusky, R. "Optimal Taxation Policies for Conservation and Recycling." 
 Journal of Economic Theory . December 1975. 
 
 Mackintosh, D.R. The Economics of Airborne Emissions: The Case for an 
 Air Rights Market . New York: Praeger, 1973. 
 
 Mar, B.W. "A System of Waste Discharge Rights for the Management of Water 
 Quality." Water Resource Research 7, 1971, pp. 1079-1086. 
 
 Marshall, Harold E. and Rosalie T. Ruegg. "Cost Sharing to Induce 
 Efficient Techniques of Abating Wastewater Pollution." Journal of 
 Environmental Economics and Management . December 1975. 
 
 Meade , J . E . The Theory of Economic Externalities: The Control of Environ- 
 mental Pollution and Similar Social Costs . Geneva: A.W. Si jthof- Leiden, 
 1973, pp. 65-66. 
 
 Montgomery, W.D. "Markets in Licenses and Efficient Pollution Control 
 Programs." Journal of Economic Theory . December 1972. 
 
 National Academy of Sciences. Air Quality and Automobile Emission Control , 
 vol. 4, The Costs and Benefits of Automobile Emission Control . Report 
 by the Coordinating Committee on Air Quality Studies, National Academy 
 of Engineering, serial no. 93-24. Washington: Government Printing Office, 
 1974. 
 
 Nichols, Albert L. and Richard Zeckhauser. "Government Comes to the 
 Workplace: An Assessment of OSHA." The Public Interest . Fall 1977. 
 
 O'Connell, Jeffrey. "Extending the 'No-Fault' Idea." The Public Interest . 
 Summer 1974. 
 
C-58 
 
 Orr, Lloyd. "Incentive for Innovation as the Basis for Effluent Charge 
 Strategy." American Economic Review . May 1976. 
 
 Page, Talbot. "Failure of Bribes and Standards for Pollution Abatement." 
 Natural Resources Journal . October 1973. 
 
 Peck, A.E. and O.C. Doering III. "Voluntarism and Price Response: Consumer 
 Reaction to the Energy Shortage." Bell Journal of Economics . Spring 1976, 
 
 Pepper, H.W. "Taxing Pollution." Bulletin of International Fiscal Docu- 
 mentation . May 1973. 
 
 Peterson, G.E. and H. Galper. "Tax Exempt Financing of Private Industry's 
 Pollution Control Investment." Public Policy . Winter 1975. 
 
 Peterson, Jerold M. "Estimating an Effluent Charge: The Reserve Mining 
 Case." Land Economics . August 1977. 
 
 Roberts, M.J. and M. Spence. "Effluent Charges and Licenses Under Uncer- 
 tainty." Journal of Public Economics . April-May 19 76. 
 
 Rose, M. "Market Problems in the Distribution of Emission Rights." Water 
 Resources Research 9, 1973, pp. 1132-1144. 
 
 Rose-Ackerman, S. "Effluent Charges: A Critique." Canadian Journal of 
 Economics . November 19 73. 
 
 Ruff, Larry E. "The Economic Common Sense of Pollution." The Public 
 Interest . Spring 1970. 
 
 Russell, C.S. and W.J. Vaughan. "On Taxation as a Pollution Control 
 Policy: A Comment." Swedish Journal of Economics . 1975. 
 
 Schultze, Charles L. The Public Use of Private Interest . Brookings 
 Institution. 1977. 
 
 Smith, V. Kerry. "A Note on Effluent Charges and Market Structure." 
 Journal of Environmental Economics and Management . April 1976. 
 
 Stephenson, J.B., ed. The Practical Application of Economic Incentives 
 to the Control of Pollution: The Case of British Columbia . Vancouver : 
 University of British Columbia Press, 1977. 
 
 Fox, I.K. "The Assessment of Pollution Control Policy 
 Mechanisms: Some Basic Concepts," pp. 19-38. 
 
 Lajzerowicz J. and P. Reilly-Roe. "The Technology and 
 Economics of Alternative Control Mechanisms in the 
 Smelting and Refining Industries," pp. 160-184. 
 
 Nemetz, P.N. "Mining and Milling in British Columbia," 
 pp. 105-159. 
 
 Stephenson, J.B. "Alternative Pollution Control Mechanisms 
 in the British Columbia Pulp and Paper Industry," pp. 213-234. 
 
 . "Conclusion, Methodological Observations, and Key 
 
 Issues," pp. 425-437, 
 
C-59 
 
 Taylor, C. Robert. "A Regional Market for Rights to Use Fertilizer as 
 a Means of Achieving Water Quality Standards." Journal of Environmental 
 Economics and Management . September 1975. 
 
 Tietenberg, T.H. "Controlling Pollution by Price and Standard Systems: 
 A General Equilibrium Analysis." Swedish Journal of Economics . June 1973. 
 
 . "Specific Taxes and the Control of Pollution: A General Equilib- 
 
 rium Analysis." Quarterly Journal of Economics . November 19 73. 
 
 Tulkens, H. and F. Schoumaker. "Stability Analysis of an Effluent Charge 
 and the 'Polluters Pay' Principle." Journal of Public Economics . August 
 1975. 
 
 Tybout, R.A. "Pricing Pollution and Other Negative Externalities." The 
 
 Bell Journal of Economics and Management Science . Spring 1972. 
 
 . "Pricing of Pollution: Reply." The Bell Journal of Economics 
 
 and Management Science . Spring 19 73. 
 . "Pricing of Pollution: The Coase Theorem in the Long Run: Reply." 
 
 Bell Journal of Economics and Management Science . Spring 1973. 
 
 U.S. House of Representatives, Committee on Public Works and Transportation. 
 Waterway User Charges . July 1977. 
 
 U.S. Senate, Committee on the Environment and Public Works. Pollution 
 Taxes, Effluent Charges, and Other Alternatives for Pollution Control : 
 A Report . 1977 . 
 
 Weitzman, W. "Prices vs. Quantities." Review of Economic Studies 4, 1974, 
 pp. 477-491. 
 
 Wenders, J.T. "Corrective Taxes and Pollution Abatement." Journal of 
 Law and Economics . October 19 73. 
 
 "Pollution Control -- Uses of Corrective Taxes Reconsidered." 
 
 Natural Resources Journal . January 1972. 
 . "Profit Maximization, Pollution Abatement, and Corrective 
 
 Pollution Taxes." Journal of Economic Issues . September 19 72. 
 
 Wertz, K.L. "Short-Run Effects of an Increased Effluent Charge in a 
 Competitive Market." Canadian Journal of Economics . November 1974. 
 
 White, L.J. "Effluent Charges as a Faster Means of Achieving Pollution 
 Abatement." Public Policy . Winter 1976. 
 
 World Bank. Environment and Development . June 1975. 
 
 Yohe, Gary W. "Substitution and the Control of Pollution: A Comparison 
 of Effluent Charges and Quality Standards Under Uncertainty." Journal 
 of Environmental Economics and Management. December 1976. 
 
IMPACT OF REGULATION ON 
 INDUSTRIAL LOCATION DECISIONS 
 
 Prepared for: 
 
 U.S. DEPARTMENT OF COMMERCE 
 
 The Assistant Secretary for Policy 
 Office of Regulatory Economics and Policy 
 
 Prepared by: 
 
 CONSAD Research Corporation 
 
 121 North Highland Avenue 
 Pittsburgh, Pennsylvania 15206 
 
 Purchase Order No. 8-36343 
 
 August 1978 
 
D-3 
 
 IMPACT OF REGULATION ON INDUSTRIAL LOCATION DECISIONS 
 
 Summary 
 
 Purpose of the Paper 
 
 The purpose of this paper is to investigate, primarily through a review 
 of the literature, the extent to which clean air requirements may affect 
 industrial location decisions. Both industrial sectors, as those seeking 
 site locations, and urban and regional jurisdictions, as those providing 
 them — and the problems and opportunities occasioned for both by the clean 
 air legislation and its implementation — are to be considered. The clean 
 air legislation is viewed, here, as an important regulatory activity, one 
 which can yield insights into regulatory activities generally, and their 
 influence upon the regional allocation of jobs and output, the inter- 
 regional migration of industry, and the national economy. 
 
 Just as the availability of raw materials and labor is considered and 
 integrated in industrial location decisionmaking, government regulatory 
 requirements may also be increasingly integrated into the decision 
 process. Regulatory requirements exist for health, safety, land use, 
 accessibility, and pollution control. Many of these requirements are to 
 a great extent uniform, but may still have differential impacts across 
 regions. The EPA air pollution regulations have potential for signifi- 
 cantly affecting regions, since they have been developed on the basis of 
 air quality measurements which show that the air over the U.S. is not of 
 uniform cleanliness. The current status of these regulations is reviewed. 
 We first ask: Why does it matter whether air pollution regulations 
 affect the location of economic activity? 
 
 This paper views the issue broadly. We have an obvious interest in 
 jurisdictions and their reaction to the consequences of the Clean Air 
 Act(s) for their future prosperity and health. We also are interested in 
 the industries which are most heavily impacted by the clean air legisla- 
 tion, the actions which they take in response to the Clean Air Act (CAA) , 
 and how resulting changes in productivity and employment affect the jur- 
 isdictions in which they currently produce their output. While, 
 apparently, only a small percentage of growth and change in urban employ- 
 ment is the result of industrial migration, per se, we need to better 
 understand the processes by which industry and jurisdictions grow and 
 change together — movers and stayers, alike. 
 
 Relevance of the Topic 
 
 There are at least three reasons why this subject is of particular 
 importance at this time: 
 
 First, given the increasing interest in modifying and/or ameliorating 
 those aspects of regulation which unduly constrain economic efficiency 
 
D-4 
 
 and/or foster "unproductive" inflationary consequences, it is clearly 
 time to look across the board to facets of air pollution legislation, 
 the weakening of which would not "unduly" harm air quality. Thus, we 
 are likely to be entering a period of interest in trading off 
 "unreasonable" and uneconomical cost changes relative to the resulting 
 changes in environmental quality. 
 
 Second, is the increasing interest in utilizing market-like price 
 systems and a wide variety of economic incentives to replace the direct 
 regulatory approach which utilizes set standards of behavior or maximum 
 allowable amounts of discharge for particular pollutants and industries. 
 Differentiated from subsidy-like incentives to induce investment in 
 pollution control facilities (for example) , pollution charges systems 
 have been recommended as a cost-effective means of achieving environ- 
 mental quality goals because, with each charge, each source decides how 
 much to control on the basis of its own control costs. Relative to 
 locational decisions, either for movers or stayers, the possibility of 
 a market for the "right to pollute" is becoming a more feasible alter- 
 native, both legislatively and institutionally. 
 
 The third reason is the interrelated set of structural and cyclical 
 conditions affecting the Nation's urban areas in which — as stated by the 
 President's Urban and Regional Policy Group ( Cities and People in 
 Distress , 1978) : 
 
 "... Far too many city residents . . . have no jobs and lack 
 adequate incomes, housing, services and other amenities, and are 
 isolated in deteriorated neighborhoods .... Net loss of jobs, 
 especially foot-loose manufacturing jobs, threatens the economy 
 and tax base of many large and small industrial cities which 
 have thinned out . " 
 
 The Urban and Regional Policy Group recognized that many, many factors 
 have combined to create the 1970s outmigration, job losses, and fiscal 
 imbalances of the Nation's center cities. Even environmental protection 
 is viewed as fostering urban distress by alledgedly favoring the con- 
 struction of new facilities over revitalization of old ones, unnecessarily 
 constraining the use of urban sites, and unduly raising the costs (through 
 inflexible standards) of doing business in center cities. 
 
 State of the Art 
 
 The profitability of business location decisions and the success of 
 federal urban policy decisions depend upon the approaches to air quality 
 taken by the various states and our knowledge about the impacts of air 
 quality regulation on economic activity and the public. 
 
 As stated above, air pollution regulations may have significant impacts 
 across regions because the air over the U.S. is not of uniform cleaniness. 
 Even if the air were uniform the variety of state approaches to achieving 
 emissions control and air quality will cause differential impacts across 
 states. Under the existing legislation there is still the basic 
 
D-5 
 
 requirement that states and regions make some decisions and set some 
 policies about the type of growth they wish to experience and the types 
 of firms they wish to attract. 
 
 The existing variety of state approaches has presented a problem both 
 to industries which desire to relocate and to each state industrial 
 development agency which must be able to argue the pros and cons of 
 their own state's approach versus that of every other state. Now more 
 than ever the industrial development agency will be coordinating with the 
 air pollution agency in each state, if for no other reason than the need 
 to follow closely the monitoring data which tells them what is an 
 attainment and what is a non-attainment area in their state . 
 
 A state with a short timetable for achieving National Ambient Air 
 Quality Standards (and/or air quality standards requiring cleaner air 
 than NAAQS) would be a state with high potential regulatory costs, and 
 one which a firm might hesitate to consider for relocation. The logic 
 of the CAA favors selection among states with longer achievement time- 
 tables. It also favors choice of very small sites which could involve 
 only one monitor, possibly a monitor some distance from the proposed 
 site. 
 
 One activity in which the impact of regulatory action on regional 
 growth should be discernible is in the decision process of individual 
 firms. The question is: Did or did not the existence of the regulatory 
 agency /mechanism play a role in the decision? If the location decision 
 is made by a reasonably objective documented process, and regulations 
 are considered to be a factor, then these regulations are, in fact, 
 impacting on regional growth. 
 
 In 1954 a survey of 350 manufacturers was taken in which respondents 
 were asked to rank the importance of various factors in their location 
 decisions. The table on the next page shows only one firm considered 
 laws and regulations of primary importance. Apparently no comparable 
 survey has been taken since, so that we can only guess at what the 
 results would be today. 
 
 More recent studies on the issue have not been able to reach definitive 
 conclusions. Some results indicate that pollution control factors have 
 had a marginal but significant effect on locational shifts of heavy 
 polluting industries. Also, as one study found, there is a tradeoff 
 between two categories of pollution control, technological abatement and 
 locational choice. Cost savings are possible by finding the proper 
 balance between the two. 
 
 Nevertheless, it is still too early to know how the clean air require- 
 ments will ultimately affect urban and regional economies. This will be 
 determined by many decisions yet to be made. But it is certainly worth- 
 while to speculate on the effects of clean air requirements on actual or 
 prospective industrial location decisions. Firms seeking site locations 
 and jurisdictions providing them will presumably be obliged to establish 
 common ground with regard to these regulations before many other 
 considerations can be weighed. 
 
D-6 
 
 Relative Importance of Factors in Industrial Location 
 (from 350 Weighted Returns) 
 
 Factor 
 
 1st 
 
 2nd 
 
 3rd 
 
 4th 
 
 Total Percent 
 5th Points Weighted 
 
 Market 
 
 118 
 
 44 
 
 35 
 
 24 
 
 13 
 
 928 
 
 18.9 
 
 Labor 
 
 33 
 
 78 
 
 45 
 
 34 
 
 31 
 
 711 
 
 14.5 
 
 Raw Materials 
 
 73 
 
 36 
 
 18 
 
 17 
 
 8 
 
 605 
 
 12.3 
 
 Building 
 
 26 
 
 28 
 
 29 
 
 15 
 
 9 
 
 368 
 
 7.5 
 
 Site 
 
 18 
 
 30 
 
 22 
 
 14 
 
 25 
 
 329 
 
 6.7 
 
 Transportation 
 
 14 
 
 32 
 
 32 
 
 31 
 
 22 
 
 378 
 
 7.7 
 
 Distribution 
 
 10 
 
 25 
 
 37 
 
 31 
 
 20 
 
 343 
 
 7.0 
 
 Living Conditions 
 
 14 
 
 11 
 
 29 
 
 35 
 
 35 
 
 306 
 
 6.2 
 
 Climate 
 
 11 
 
 8 
 
 11 
 
 22 
 
 25 
 
 189 
 
 3.9 
 
 Industrial Fuel 
 
 3 
 
 12 
 
 20 
 
 14 
 
 14 
 
 165 
 
 3.4 
 
 Water 
 
 3 
 
 7 
 
 12 
 
 10 
 
 8 
 
 107 
 
 2.2 
 
 Industrial Power 
 
 
 
 3 
 
 14 
 
 15 
 
 11 
 
 95 
 
 1.9 
 
 Financial Help 
 
 8 
 
 7 
 
 7 
 
 7 
 
 5 
 
 108 
 
 2.2 
 
 Taxes 
 
 5 
 
 5 
 
 3 
 
 14 
 
 22 
 
 104 
 
 2.1 
 
 Laws & Regulations 
 
 1 
 
 2 
 
 5 
 
 6 
 
 14 
 
 54 
 
 1.1 
 
 Miscellaneous 
 
 15 
 
 5 
 
 2 
 
 1 
 
 4 
 
 107 
 
 2.2 
 
 Source: Survey by Industrial Economics Research Division, Texas Engineering 
 Experiment Station, Texas A&M University, October 1954. 
 
 One important impact of the CAA could well be the discouragement of firms 
 from going through the process of looking for new sites, since they will 
 have to negotiate with a state or city on the site and then review their 
 alternatives. Only after a firm has submitted a proposed emissions inven- 
 tory will a state be able to identify definite sites which could be 
 acceptable . 
 
 The concern of municipalities over the 1977 CAA is partly a reflection of 
 traditional struggles between city, suburban, and state level factors. 
 Today, any plant which is thinking of leaving a central city must consider 
 that the alternative costs of air pollution control would not necessarily 
 be much lower even if the plant proposed to move to an attainment area. 
 If the plant's emissions could cause the air quality elsewhere to degrade 
 beyond the allowable increment, then the plant would be required to install 
 best available control technology or to seek yet another site. 
 
 While the complexity of environmental regulations could be a deterrent to 
 a firm in deciding whether to move, the regulations are going to impinge 
 on the firm whether it moves or not. Considerable flexibility may exist 
 for tradeoffs or offset arrangements among movers and stayers, creating a 
 new industrial mix within allowable constraints. There is no indication 
 that air pollution requirements are going to be tougher for stayers than 
 for movers. 
 
D-7 
 
 Concluding Remarks 
 
 We have covered a variety of subjects in this paper and, unfortunately, 
 have reached no definitive conclusions about the locational effects and 
 further downstream consequences of the clean air legislation, particu- 
 larly the CAA of 1977. 
 
 The literature we have reviewed is, indeed, sparse as it relates to the 
 specific question (s) of the treatment and control of the attendant costs 
 of air pollution standards on "industrial location" (or, even more 
 broadly, the geographical deployment of employment and output) . Why is 
 the empirical data and analysis so sparse? Perhaps too short a period 
 has passed. 
 
 Perhaps the analytic problem is too complex and no one has been able to 
 formulate it very well. Similarly for data bases: Which make the most 
 sense? Many, many gaps in an "ideal" data system exist. 
 
 This work has led us to the following conclusions: 
 
 • This is an ideal time to begin to monitor the impacts of an 
 important regulatory activity, i.e., the CAA and its implemen- 
 tation. The logic of the CAA is such that we can anticipate 
 that it will most likely have substantial locational effects — 
 but we may never get to know these. We are not ready to 
 measure, estimate, or project these consequences; the analytic 
 concepts have not been fleshed out and the data bases are 
 almost surely inadequate . 
 
 • The work to date — by government agencies, academics and 
 industry — on the consequences (on industrial location) of clean 
 air and other environmental legislation, is: not convincing; 
 difficult to assemble; and probably not useful for estimating 
 the future consequences. 
 
 • If industrial location is_ affected, in a substantial way for 
 some sectors and in some places, as we expect it will, it will 
 have both microeconomic impacts (i.e., on economic efficiency) 
 and, possibly, macroeconomic effects (i.e., on jobs and output). 
 Prices and costs would be affected in either case. 
 
 • Even if the CAA has substantial locational consequences, we 
 are unable to conclude whether benefits from the Act exceed its 
 costs; however, it would be worthwhile to begin to measure 
 these costs and, where benefits would not be affected, find 
 ways to mitigate unintended locational misallocation effects. 
 
D-9 
 
 TABLE OF CONTENTS Page 
 
 1.0 SCOPE AND OBJECTIVES OF REPORT D-ll 
 
 1.1 Impacts on the Economy (Generally) 
 
 and Location (Specifically) D-12 
 
 1.2 Potential Impacts of Air Pollution and Other 
 Regulations on Industrial Location: Trans- 
 portation Regulations as an Illustration D-15 
 
 1.3 Strategies for Location Decisions to 
 
 Incorporate Regulatory Requirements D-17 
 
 1.4 Need for Better Theory and Data on Industrial 
 
 Location Decisions: Why We Should Care D-18 
 
 2.0 POTENTIAL IMPACTS OF CLEAN AIR ACTS ON 
 
 INDUSTRIAL LOCATION D-21 
 
 2.1 The Act and State Variations D-21 
 
 2.2 Concepts in 1977 CAA Which Are Relevant to 
 
 Industrial Growth D-24 
 
 2.2.1 Significant Deterioration D-24 
 
 2.2.2 Attainment and Non-Attainment D-24 
 
 2.2.3 Enforcement D-26 
 
 2.3 Requirements for States and Other Agencies D-27 
 
 2.3.1 Designation of Classes of Areas D-27 
 
 2.3.2 State Implementation Plans D-27 
 
 2.3.3 Cost Analysis of Alternate Locations D-27 
 
 2.3.4 Meteorologic Modeling D-28 
 
 2.4 Probable Requirements for Firms D-28 
 
 2.5 Importance of Geographic Scale in Corporate 
 Location Decisions: How to Compare Potential 
 
 Regulatory Costs D-28 
 
 2.5.1 Comparison and Selection of Multistate 
 Regions with Respect to Air Quality And/ 
 
 Or Regulatory Stringency D-29 
 
 2.5.2 Review and Selection of Specific Sites 
 With Respect to Pollution Control Costs 
 
 and Other Costs D-29 
 
 2.5.3 Iterative Decisionmaking and 
 Reconsideration of Alternatives: 
 
 The Use of Decision Models D-30 
 
 2.6 How Serious Can the Impacts of These 
 
 Regulations Be? D-31 
 
 3.0 USE OF ANALYTIC DECISIONMAKING LOCATIONAL 
 
 MODELS D-37 
 
 3.1 Models to Examine Regional Economic Effects D-37 
 
 3.2 Use of Various Models to Build Regulatory 
 
 Requirements Into Location Decisions D-48 
 
 3.3 Strategies for Adding Regulatory Constraints 
 
 to Location Models, and for Model Applications D-50 
 
D-10 
 
 TABLE OF CONTENTS (continued) Page 
 
 3.3.1 Improving the Decision Process by 
 Extending Models and by Linking 
 
 Models with Other Techniques D-50 
 
 3.3.2 Applications of Models by State and 
 Local Agencies to Analyze Alternative 
 
 Sites D-50 
 
 3.3.3 Applications of Models by Private 
 Location Advisory Firms, Railroads and 
 
 Private Industrial Site Developers D-51 
 
 3.4 Interindustry Models in Location Decisions 
 and Their Potential for Incorporating 
 
 Regulatory Requirements D-51 
 
 3.5 Normative Approaches D-51 
 
 4.0 PREDICTING THE IMPORTANCE OF FEDERAL REGULATIONS IN 
 
 SPECIFIC LOCATION DECISIONS D-55 
 
 4.1 Review and Prediction of the Role of Federal 
 
 Regulations in Location Decisions D-56 
 
 4.2 Consideration of Specific Types of Industry D-56 
 4.2.1 The Industry List from 1977 CAA D-56 
 
 4.3 Review of Cost and Impact Data D-57 
 
 5.0 CONCLUDING REMARKS D-64 
 
 APPENDIX: Annotated Bibliography D-67 
 
 INDEX D-175 
 
D-ll 
 
 1.0 SCOPE AND OBJECTIVES OF REPORT 
 
 The purpose of this paper is to investigate, primarily through a re- 
 view of the literature, the extent to which clean air requirements may 
 affect actual or prospective industrial location decisions. Both indus- 
 trial sectors, as those seeking site locations, and urban and regional 
 jurisdictions, as those providing them — and the problems and opportuni- 
 ties occasioned for both by the clean air legislation and its implementation — 
 are to be considered. The clean air legislation is viewed, here, as an 
 important regulatory activity, one which can yield insights into regulatory 
 activities generally, and their influence upon the regional allocation of 
 jobs and output, the interregional migration of industry, and the national 
 economy. 
 
 We have placed our primary emphasis upon providing logical step-by- 
 step procedures by which Federal regulatory requirements may be compared 
 with and related to social, economic, and demographic factors in analyzing 
 industrial location and development. The procedure will thus be described 
 in the context of location decisions by industrial executives, i.e., the 
 industrial location decision, as well as the decisions of those affecting 
 the provision of available sites for industrial location. Many industrial 
 siting factors are considered by the decisionmakers: even recognizing that 
 the decision process for any firm and/or jurisdiction is never ideally 
 "comprehensive" and "objective," we will study both normative ("ideal") 
 approaches, as well as more realistic, verifiable industrial location 
 decisionmaking. 
 
 Just as the availability of raw materials and labor is considered and 
 integrated in industrial location decisionmaking, government regulatory 
 requirements may also be increasingly integrated into the decision process. 
 Regulatory requirements exist for health, safety, land use, accessibility, 
 and pollution control. Many of these requirements are to a great extent 
 uniform, but may still have differential impacts across regions. The 
 Environmental Protection Agency's (EPA) air pollution regulations have potential 
 
 The specific contractual charge was that: 
 
 The Contractor shall prepare a paper that will review the 
 literature, specifically on the impact of clean air requirements 
 on actual or prospective industrial location decisions. It will 
 review and summarize significant problems encountered by specific 
 urban areas and industries. The review of the analyses shall take 
 the form of an annotated bibliography. It shall include descrip- 
 tions of assumptions, methodology, and findings. Problems faced by 
 regions, urban areas, and municipalities shall be documented in a 
 separate section. Based upon this review, a narrative statement of 
 the actual and potential effects of regulations on urban growth will 
 be prepared as the text of the paper, with the bibliography and other 
 materials as appendices. 
 
D-12 
 
 for significantly affecting regions, since they have been developed on the 
 basis of air quality measurements which show that the air over the United 
 States is not of uniform cleanliness (Morgenstern, et. al. , 1975).* The 
 current status of these regulations is reviewed in Section 2.0. We first 
 ask: Why does it matter whether air pollution regulations affect the 
 location of economic activity? Sections 1.1 through 1.4 present some 
 answers to this question. 
 
 1.1 Impacts on the Economy (Generally) and Location (Specifically) 
 
 Ranging from being broadly villified as being at the heart of the 
 decline of U.S. productivity and preeminence (Fowler, 1978; Weidenbaum, 
 1978) to being generously praised as producing "general economic benefits" 
 (Bell, 1978) , almost every shade of opinion exists about the benefits and 
 costs, advantages and disadvantages, and pros and cons of Federal legisla- 
 tion dealing with the regulation of pollution and toxic substances (Clean 
 Air Act, 1970, 1977; Federal Water Pollution Control Act, 1972, 1977; 
 Occupational Safety and Health Act, 1970; Toxic Substances Act, 1976; 
 Federal Food, Drug, and Cosmetic Act, "1958, 1962; Federal Insecticide, 
 Fungicide, and Rodenticide Act and the Federal Environmental Pesticide 
 Control Act, 1972; Safe Drinking Water Act, 1974; and the Resource 
 Conservation and Recovery Act, 1976) . Focusing, primarily, on the Clean 
 Air requirements, most of the commentators have been more selective in 
 their appraisal of the Act(s) , both to date and as to prospective future 
 effects: 
 
 • "Macro" effects on national output, investment, productivity, 
 price levels, and employment (Chao and Dossani, 1976; Chase 
 Econometric, 1975; Council on Environmental Quality, 1974, 1975; 
 Dolde, et al. , 1977; Kane, 1974; Petersen, 1973; Train, 1974; 
 Senate Committee on Public Works, 1974); 
 
 • "Micro" effects on the economic efficiency of industry, generally 
 (Patrick, 1974; Speer, 1977; Wagner, 1974); 
 
 • Effects on municipalities, other local and regional jurisdictions 
 and geographical areas, as well as on "urban form" (Barro, 1977; 
 Freund, 1975; Miernyk and Sears, 1974; Popper, 1978; Schuler, 
 1974); 
 
 • Consequences for "small businesses" (National Association of 
 Manufacturers, 1974; Joint Economic Committee, 1978); 
 
 • Frequency of "controls-caused" plant closings and decreased jobs 
 consequences (Freund, 1975; Mohr, 1978) ; 
 
 * 
 
 References cited in this manner are contained in the annotated 
 bibliography attached to this paper (Appendix A) . 
 
D-13 
 
 • Income distribution/ equity consequences in impacted jurisdiction 
 (Collins, 1974*); and 
 
 • Consequences for industrial location industry issues related to 
 energy-producing sites (Birch, 1978; Pennsylvania, Governor's 
 Science Advisory Committee, 1976; Meyer and Leone, 1978; Nijkamp 
 and Paelinck, 1973) . 
 
 We shall see, below, how the last of these — the "locational" 
 impact — can be of a sufficiently substantial concern, in "micro," "macro," 
 and distributional terms. However, in order to portray the full (potential) 
 impacts of the Clean Air Act, we need to consider "location" in its most 
 comprehensive meaning. Not only shall location mean an employer's decision 
 and act to initiate a new enterprise in a place and/or to relocate an 
 existing one; in addition, we wish to consider the decision to expand and/ 
 or contract output and employment in a place, as a decision — at the 
 margin — to stay instead of moving. We are also concerned with the impact 
 of the Act on the movement, mobility, and expansion/contraction of mobile 
 factors of production (e.g., labor, population, entrepreneurs, capital, 
 technology /know-how, etc.), since these impact, both directly and indirectly, 
 on macro and micro, areal and sectoral, output and employment. 
 
 Thus, we view our charter here broadly. We have an obyious interest 
 in jurisdictions and their reaction to the consequences of the Clean Air 
 Act(s) for their future prosperity and health. We, also, are interested 
 in the industries which are most heavily impacted by the clean air legisla- 
 tion, the actions which they take in response to the Act, and how resulting 
 changes in productivity and employment affect the jurisdictions in which 
 they currently produce their output. While, apparently, only a small per- 
 centage of growth and change in urban employment is the result of industrial 
 migration, per se, (Birch, 1978) we need to better understand the processes 
 by which industry and jurisdictions grow and change together — movers and 
 stayers, alike. An illustration of the complexity of the location process 
 is the impact of the clean air legislation on the siting of generating 
 stations, e.g., at fuel resource location versus near the area of consumption. 
 Impacts both on coal production and utilization, as well as on co-sited 
 production facilities, can be clearly seen. Another "locational" consequence, 
 one alleged by the hard-liners to affect jobs and output, is the unusual 
 impact of retrofitting of air pollution equipment on plants, with relatively 
 short remaining lives, to meet emission standards. Other related "locational" 
 impacts concern: the appropriate policy and its implementation regarding 
 the siting of new plants in non-attainment areas; the integration of the 
 implementation of air pollution policies with those of water pollution and 
 land use; administrative techniques for easing the burden of nonperformance 
 of new technologies utilized by industry; the encouragement of pollution 
 control R&D which has different consequences by industry and region; and 
 administrative methods permitting "reasonable and necessary growth" in the 
 
 * 
 This is a water pollution control-related study. 
 
D-14 
 
 utilization of coal, which is encouraged as part of the President's first 
 National Energy Policy. 
 
 There are at least three reasons why this subject is of particular 
 importance at this time. 
 
 For one, given the increasing interest in modifying and/or ameliorating 
 those aspects of regulation which unduly constrain economic efficiency and/ 
 or foster "unproductive" inflationary consequences, it is clearly time to 
 look. across the board to facets of air pollution legislation, the weakening 
 of which would not "unduly" harm air quality. Thus, we are likely to be 
 entering a period of interest in trading off "unreasonable" and uneconomical 
 cost changes relative to the resulting changes in environmental quality. 
 
 A second and related reason is the increasing interest in utilizing 
 market-like price systems and a wide variety of economic incentives to 
 replace the direct regulatory approach, which utilize set standards of 
 behavior or maximum allowable amounts of discharge for particular pollutants 
 and industries (Anderson, Kneese, Taylor, Reed, and Stevenson, 1978; Blair, 
 1973; Bower, 1978; Comolli, 1974, 1977; Irwin and Liroff , 1974) . Differen- 
 tiated from subsidy-like incentives to induce investment in pollution control 
 facilities (for example) , pollution charges systems have been recommended 
 as a cost-effective means of achieving environmental quality goals because, 
 with each charge, each source decides how much to control on the basis of 
 its own control costs. Relative to locational decisions, either for movers 
 or stayers, the possibility of a market for the "right to pollute" is be- 
 coming a more feasible alternative, both legislatively and institutionally, 
 giving rise to our increased interest in this paper. 
 
 A third reason for increasing interest at this time in the subject 
 of locational impacts of environmental regulation concerns the interrelated 
 set of structural and cyclical conditions affecting the Nation's urban 
 areas in which — as stated by the President's Urban and Regional Policy 
 Group ( Cities and People in Distress , 1978) : 
 
 "...Far too many city residents. . .have no jobs and 
 lack adequate incomes, housing, services, and other 
 amenities, and are isolated in deteriorated neighbor- 
 hoods.... Net loss of jobs, especially foot- loose 
 manufacturing jobs , threatens the economy and tax 
 base of many large and small industrial cities which 
 have thinned out." 
 
 The Urban and Regional Policy Group recognized that many, many factors 
 have combined to create the 1970' s outmigration, job losses, and fiscal 
 
 * 
 
 EPA's proposed weakening of certain water pollution rules (August 10, 
 
 1978) , for industries which EPA has determined it would be economically 
 "unreasonable" to require compliance, are alleged not to "harm water 
 quality. " 
 
D-15 
 
 imbalances of the Nation's center cities. Even environmental protection 
 is viewed as fostering urban distress by alledgedly favoring the construction 
 of new facilities over revitalization of old ones, unnecessarily constrain- 
 ing the use of urban sites, and unduly raising the costs (through inflexible 
 standards) of doing business in center cities. Compounding this problem 
 facing the vast majority of our urban jurisdictions is the increasingly 
 apparent fact that the condition of the basic infrastructure, which is 
 necessary for the economical operation of these areas and their industries, 
 is in a very poor, undermaintained state. Billions of dollars of needed 
 jnaintenance, renovation, and reconditioning is the bill facing thousands of 
 jurisdictions, partly due to inflation, partly to the "political process" 
 and other institutional factors, and partly to the very fragile state and 
 local budget picture. 
 
 The impact of air and water pollution requirements on the capital- 
 raising capacities of local governments is one of the reasons for our 
 interest, here, on the locational consequences of the environmental 
 legislation. During the seventies, and preparatory to the next decade, a 
 number of both macro- and micro specif ic market studies have set the stage 
 by placing the state and local financing demand/supply situation within the 
 context of the national capital market. 
 
 Questions about capital availability, access, and costs have been 
 raised, looking at components of this overall market, for specific types 
 of securities, types of public investment, regions of the Nation, and other 
 less macroapproaches (Petersen and Galper, 1970; Kummerfeld and Petersen, 
 1973) . Clearly, the role and use of tax exempts differs now from what it 
 was a decade earlier: options for alternatives (e.g., Federal funding, use 
 of own resources, etc.) are more available; "public" and "private" invest- 
 ment and tax-exempt/ taxable debt are less clearly separable conceptually, 
 legally, and institutionally; there is increasing privatization of the use 
 of "public purpose" instruments; and forces and trends are changing within 
 each of the public investment functional areas, as well as increasing 
 interest in specific markets, e.g., private developer subdivisions, energy 
 boom towns, depressed areas, and others. 
 
 Thus, our interest in locational consequences is rooted in a variety 
 of reasons, ranging from current pressing problems to opportunities and 
 potential for the future. That environmental regulation can have locational 
 consequences is not unique — since, as we shall observe in the next section, 
 other forms of governmental regulation have already had far-reaching loca- 
 tional consequences. 
 
 1.2 Potential Impacts of Air Pollution and Other Regulations on Industrial 
 Location: Transportation Regulations as an Illustration 
 
 One of the oldest forms of government regulation involves intervention 
 in the transport industries: this regulatory activity serves, here, as an 
 illustration that regulation can have important locational consequences . 
 
D-16 
 
 Federal regulations have had a continuing impact on industrial growth 
 and where that growth takes place since the evolution of the control of 
 rail freight rates during the post civil war period. Transportation regu- 
 lations rapidly became so complex that there would be considerable difficulty 
 in analyzing specific regional emphases within any commodity or group of 
 commodities. Such analyses have been accomplished, however, with respect 
 to the impact of rail freight rates and the impact of interline transfers 
 and basing point pricing on regional growth. Thus, there is an historical 
 record — albeit partial and very crude at best — of the impacts of certain 
 regulatory activity on regional growth. Clearly, this record is continuing, 
 so that it would be astonishing if new regulations which are based on 
 geographic phenomena such as air pollution did not have some differential 
 regional impact. 
 
 The question arises of whether it is plausible to look at transpor- 
 tation regulation in order to draw insights about air pollution regulation. 
 The answer is that both transportation and air pollution are essentially 
 geographic phenomena: they show regional diversity, and they are affected, 
 to greater or lesser extent, both by underlying physical geographic features 
 (mountains, rivers) , and also by preexisting development (cities, farms) . 
 Regulatory decisions interacted with the evolution of transportation 
 systems, and it is likely that air pollution regulation is now interacting 
 with the location pattern of industry. 
 
 The Interstate Commerce Commission (ICC), for example, has played a key 
 role in approving rates which rail companies charge to their customers, and 
 to each other. The Hoch-Smith Resolution in 1926 instructed the ICC to take 
 into consideration, in "adjusting" freight rates, the economic conditions 
 prevailing in industries subject to the rates. The rule of ratemaking 
 adopted by Congress in 1933 instructed the ICC to give consideration, inter 
 alia, to the effect of rates on the movement of traffic. Hence, there is a 
 long history of ratemaking in which the ICC has explicitly considered economic 
 conditions and ability to pay as major factors in prescribing rates. Although 
 Congress has not (until the 3R (Regional Rail Reorganization Act of 1973, 
 PL 93-236) and 4R (Railroad Revitalization and Regulatory Reform Act of 1976, 
 PL 94-210) Acts) directly subsidized firms providing rail freight transpor- 
 tation service, it has permitted large elements of cross-subsidy to persist 
 in the freight rate structure. For rail passenger service, the ICC has 
 depended heavily on cross-subsidy to sustain services which quite clearly 
 have been unable to pay their own way. 
 
 In regulating truck transportation, the Commission has applied its 
 concept of balanced transportation to assure a wide geographic uniformity 
 of service and rates, which has had much to do with the shift of industry 
 away from downtown or near downtown to surburban locations or locations even 
 farther away. Cross-subsidy and control over entry has made this possible. 
 One may argue the economic soundness of such a policy but, clearly, it is 
 consistent with (original) congressional attempts to afford opportunity to 
 suburbs and to smaller and more remote communities to develop. 
 
D-17 
 
 However, despite the uses of regulation for developmental purposes and 
 for equalizing growth opportunity over wide areas , there have been few 
 efforts by the regulatory agencies to implement any overall economic schemes 
 or plans, or even to study and assess the consequences of their decisions 
 and activities. Each mode of transportation has been more or less dealt 
 with sui generis , although the ICC has at times seemed to try to achieve 
 a kind of division of labor among the modes which it regulates — rail, 
 truck, inland and coastal water carriers, and freight forwarders. Ordinarily, 
 however, this has more often resulted in duplication rather than coordination 
 of service. Recognizing the importance of cross-subsidy to the continued 
 provision of ubiquitous trucking service, the Commission has by its rate 
 policies assured truckers access to high density flows. In turn, the 
 Commission has hesitated to permit inland water carriers, which are the 
 lowest cost carriers if only operating costs are considered, to make off 
 with traffic which is lucrative to the railroads. 
 
 But trying to strike a balance of revenues among the carriers and 
 assuring small communities and small shippers transportation service is 
 clearly not "coordinated planning," on the one hand, or the "invisible hand" 
 of the market, on the other. 
 
 Overall, there is much disenchantment with the complexity and obscurity 
 of the rate system. The lesson to be learned by the new kinds of regulations 
 is not that they have interregional impacts , but that these impacts could 
 remain undiscoverable and unintended for many years. This need for foreseeing 
 impacts brings us back to the main thread of this paper: impacts of current 
 regulations, particularly environmental controls. 
 
 1.3 Strategies for Location Decisions to Incorporate Regulatory Requirements 
 
 One activity in which the impact of regulatory action on regional growth 
 should be discernible is in the decision process of individual firms. The 
 question is: Did or did not the existence of the regulatory agency /mechanism 
 play a role in the decision? If the location decision is made by a reasonably 
 objective documented process, and regulations are considered to be a factor, 
 then these regulations are, in fact, impacting on regional growth. 
 
 It is neither desirable nor expected that the location decision be 
 entirely objective and rational. Any given individual firm will have its 
 own process for location decisionmaking, and the regulatory conditions will 
 typically not be integrated in any standardized way across firms and across 
 industries. The concept of an internalized formal environmental-economic 
 benefit-cost analysis of alternative sites is, of course, a possibility but, 
 in any case, such an analysis must still be fed into the decision process in 
 some sense. The first question is: What effects will the regulatory con- 
 straints have on the balance sheets for the facility if it is located at 
 site A, site B, or elsewhere? And the second question is: How important 
 managerially will these effects be relative to raw materials, markets, 
 labor, business climate, and other factors? These are traditional questions, 
 
D-18 
 
 and each firm's approach to them is what distinguishes it from other firms. 
 
 We are interested, here, in both these interfirm and intersectoral 
 differences, as well as their similarities — and how these similar and 
 dissimilar locational processes are being affected by the changing objectives 
 and role of regulation, particularly that of air pollution control legislation. 
 Approaching the location process in this manner clearly requires a "micro" 
 decisionmaking perspective. 
 
 1.4 Need for Better Theory and Data on Industrial Location Decisions: Why 
 We Should Care 
 
 Another approach to discovering the impact of regulatory requirements 
 on regional location, change, and growth is to study the data for regions on 
 both regulatory requirements and their implementation, on the one hand, and 
 industrial development on the other. There are substantial data on regional 
 growth, but much less data exists on the degree of and/or direct impacts of 
 regulations. Nevertheless, analyses need to be conducted as data supplies are 
 improved, and these analyses should be performed to assist in our understanding 
 of regional change experience, generally. One part of the present report 
 (Section 3) will review some promising analytical approaches, and suggest some 
 new ones . 
 
 How can all of the multitude of factors which characterize a region, and 
 which may enter very subtly into the corporate location decision, be compiled 
 into a comprehensive regional industrial change analysis? The underlying 
 structural connections among such factors are called regional growth theories. 
 As might be expected, there are probably as many different theories as there 
 are state industrial development commissions and agencies. In the present 
 report, some general components of such theories, such as the attractiveness 
 of environmental quality, the level of intergovernmental cooperation, and the 
 "quality" of the labor force will be discussed briefly. These components 
 should be developed by specific analyses, both at the industrial decision 
 level, as well as at the statistical regional growth level. Then it would 
 be possible to say more definitely whether and how regulatory constraints, 
 such as air pollution regulations, help or hinder — or, at least, substan- 
 tially affect — regional growth. 
 
 The reasons we should care about these effects is, perhaps most impor- 
 tantly, this: If these consequences are felt "regionally," that would mean 
 that depending upon their magnitude, locational decisions by industry, which 
 should be allocating resources to their highest valued uses (in time and 
 place), would be interfered with and, in some cases, contravened entirely. 
 How important this type of spatial misallocation is and/or could become — 
 and whether or not it is even possible to measure the social costs of this 
 misallocation — is a subject we shall only begin to discuss here. Hopefully, 
 we will have initiated an important dialogue for, if the spatial misallocation 
 is serious or could become serious, then what have become traditional environ- 
 mentalist and EPA arguments that environmental regulations are not 
 
D-19 
 
 inflationary will have to be more critically reviewed. Apparently, the 
 forthcoming National Commission on Air Quality believes the subject to be 
 an open one because included in its agenda are these topics : 
 
 ** 
 
 • The extent to which maintenance (i.e., achievement) of 
 air quality standards will "inhibit orderly growth" 
 
 in non-attainment areas; and 
 
 • The extent to which prevention of significant deteri- 
 oration (PSD) of air quality will affect the growth 
 and development of selected regions. 
 
 These are issues both of economic efficiency and equity. A growing 
 body of literature has developed relating improved — even "optimal" 
 balancing — between industrial output, pollution controls and costs, and 
 resulting community "real income," including the "value" of the cleaner 
 environment to workers and the community at large (Blair, 1973; Ciriacy- 
 Wantrup, 1971; Davis, et.al . , 1974; Forster, 1977; Kamien and Schwartz, 
 1977; Maler, 1977; Mathur, 1971; Nevers, 1977; Ogden, 1966; Walter, 1971; 
 and Werczberger, 1974) . There are increasing numbers of attempts to 
 formulate "enlightened economic development" policies for urban and regional 
 jurisdictions, incorporating the social costs and benefits of pollution 
 reduction along with traditional private sector costs and benefits (Nijkamp 
 and Paelinck, 1973). Our interest, here, lies partly in assessing the 
 operationality (measurability) of these, and similar, concepts, in the light 
 of the new Clean Air Act and our experience with the legislation to date. 
 
 We care about these potential locational effects also because there 
 may be ways to provide additional impetus to the use of the "market system" 
 to promote cost-effective behavior on the part of polluters and "equitable" 
 sharing of the costs and benefits which arise from tradeoffs between 
 environmental and economic efficiency effects, as these are affected by 
 locational decisions. The system of marketable air emission rights, set in 
 motion by an interpretative EPA ruling in 1976, has initiated a flexible, 
 though limited, market mechanism process. Suggestions for improving this 
 
 * 
 E.g. , see remarks by EPA Deputy Administrator Barbara Blum before 
 
 the House Banking Committee on Economic Stabilization, July 26, 1978. 
 
 * * 
 
 Prepared for the Congressional Research Service, U.S. Library of 
 
 Congress, "Suggested Plan of Study and Administrative and Management Plan 
 for the National Commission on Air Quality," July, 1978. 
 
 ieick 
 
 Non-attainment areas are those regions of the country which currently 
 do not meet Federal ambient air quality standards. 
 
D-20 
 
 process are being made increasingly, economists finding this perhaps the 
 most palatable procedure. However, to evaluate the utility of this and 
 other approaches, we need to understand better the underlying concepts 
 and processes at work. 
 
 The connecting links between consequences of the Clean Air Act for 
 industrial location and its effects upon spatial resource allocation, 
 inflation, and growth management are still ambiguous. Nevertheless, if 
 the Act does, or will, substantially affect location, then all of these 
 "downstream" consequences would need to be studied, We do not do that 
 here, but do provide some exploratory suggestions about ways in which 
 these other consequences might: (a) occur, and (b) be studied. 
 
 E.g., see Hugh H. Macauley and Bruce Yandle , Environmental Use and 
 
 the Market, D.C. Heath, 1977. 
 
 i 
 
 _ 
 
D-21 
 
 2.0 POTENTIAL IMPACTS OF CLEAN AIR ACTS ON INDUSTRIAL LOCATION 
 
 2 . 1 The Act and State Variations 
 
 The Air Quality Act of 1967 set the stage for "making air cleaner." 
 This initial concept eventually produced the National Ambient Air Quality 
 Standards (NAAQS) , a concept which was truly national in scope, i.e., the 
 air everywhere in the United States was to be at least as clean as the 
 standards. Thus, the approach taken, from the beginning, undoubtedly had 
 locational and economic growth implications: some places already had 
 dirtier air than others and many had air that was dirtier than the stan- 
 dards. To some extent , unknown at the time and to a substantial extent 
 still, some differential impacts were clearly to be experienced. 
 
 Under the Air Quality Act, the states were allowed to have differing 
 standards for air quality, to be set by an extensive intergovernmental 
 procedure, as described by the Environment Reporter : * 
 
 To set in motion the machinery for regional 
 control of air pollution, the Department of 
 Health, Education and Welfare first designates 
 air quality control regions and issues air 
 quality criteria and reports on control tech- 
 niques. State -governments then are expected 
 to adopt air quality standards for the regions 
 and plans for implementation of the standards . 
 The air quality standards and implementation 
 plans must be submitted to the Department for 
 review. After the standards and plans are 
 approved, States are expected to prevent and 
 control air pollution in accordance with those 
 standards and plans. 
 
 The divergence permitted among states was eliminated by the Clean Air Act 
 of 1970, which provided the basis for issuance of national standards. These 
 standards were first issued in November, 1971, and revised in 1976. Under 
 40 CFR 50, primary and secondary standards were issued for the following 
 pollutants: 
 
 Sulfur oxides, 
 Particulates, 
 Carbon monoxide , 
 Photochemical oxidants, 
 Hydrocarbons, and 
 Nitrogen dioxide. 
 
 ♦Environment Reporter, 31:1121, 1970. 
 
D-22 
 
 Thus, the period 1967-1971 saw a shift from national divergence to uniform 
 air quality standards, but this spatial policy change was probably due more 
 to the recognition that air pollution does not recognize state boundaries 
 than to considerations of regional economic growth and change. 
 
 Although air quality standards became uniform, the process for achieving 
 the standards was left largely to the ingenuity of the states, each of which 
 was required to submit an implementation plan to show how its air could be 
 made cleaner. In a series of reports by EPA, the progress of each state was 
 documented, and the reports showed that after initial gains, progress was 
 slowing, and many states had failed to attain the clean air standards in 
 one or more pollutant categories (Table 1) . 
 
 Meanwhile, another concept was emerging which would have implications 
 for industrial location decisions: the concept of "significant deterioration 
 of air quality." Although this concept seems to have taken considerable time 
 to work out, it reflects the intent of the 1970 Clean Air Act to prevent or 
 elminate damage to the environment. The concept as developed by EPA and 
 tested in court has now become a key component of the 1977 Clean Air Act. 
 
 This significant deterioration concept is not new. It has been in the 
 EPA program structure since 1975. Other concepts in the 1977 Act have also 
 generally been in existence, including the enforcement procedure for fining 
 firms which violate emission limits, either as a new source, a hazardous 
 substance emitter, or an old source for which their state plan has set 
 levels. 
 
 It is important at this juncture to discuss variations in state plans. 
 The plans approached emissions control from many different perspectives, 
 including fuel content, production levels, Btu's generated, and emissions 
 control devices. By 1975, however, EPA discovered that almost none of the 
 plans had a component or feature to prevent significant deterioration. 
 Therefore, the plans had to be revised to incorporate such a feature. Most 
 states found themselves accepting the PSD plan which EPA had devised. 
 Finally, this plan has been written into the new 1977 Act, so that some 
 geographic uniformity has been established. 
 
 The PSD requirements do not necessarily determine whether the individual 
 state's approach to emissions control and reduction is to be considered 
 "adequate." At least at a formal level, states still have substantial 
 freedom to develop their own techniques and tactics for achieving emissions 
 control and air quality. The EPA and Congress have struggled with the 
 problem of pollution drifting across states, but the individual state plans 
 have continued to be an important factor in the state's posture with respect 
 to industrial growth. 
 
 The variety of state approaches itself presents a problem both to 
 industry which desires to relocate and also to each state industrial develop- 
 ment agency which must be able to argue the pros and cons of their own 
 state's approach versus the approach of every other state. For this reason, 
 the industrial development agencies will probably find that the standard 
 
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D-24 
 
 definition of significant deterioration now written into the Clean Air Act 
 will give them a more stable and uniform basis for at least part of what 
 they can discuss with prospective new firms. 
 
 In summary, the approaches which have evolved for cleaning up the air 
 have been forced to recognize that air pollution spreads across states. 
 EPA and the Congress have continued to try to reserve flexibility for the 
 states in their emission control strategies, while preventing extreme 
 conditions from existing in any state and requiring that every state work 
 toward the national standards as a minimum. 
 
 2.2 Concepts in 1977 CAA Which Are Relevant to Industrial Growth 
 2.2.1 Significant Deterioration 
 
 In 2 . 1 above, the concept of significant deterioration was introduced 
 as having originated from general statements in the Clean Air Act of 1970. 
 Another major event was the court case brought by the Sierra Club in 1972 
 which resulted in a decision that EPA must have a program for the prevention 
 of significant deterioration. The EPA reviewed all state implementation 
 plans after May 31, 1972, using the criterion of whether each plan had any 
 provision for prevention of significant deterioration. Eventually, the 
 concept of nonsignificant deterioration was defined by the pollutant amounts 
 shown in Table 2 . 
 
 Even though the annual amounts of deterioration allowed were precisely 
 defined, some flexibility was reserved to the states in the concept of 
 classes of areas. The Clean Air Act of 1977 sets forth ways in which states 
 can define a given area as Class I, II, or III. First, the area defined 
 can be any jurisdiction or part thereof, so that relatively small areas 
 can be separated from larger areas. Second, areas can be redesignated in 
 either direction of stringency. Areas of all classes may eventually 
 deteriorate to the ambient air quality standards, but no further, and the 
 deterioration can only involve particulates and sulfur dioxide as shown 
 in Table 2. 
 
 2.2.2 Attainment and Non- Attainment 
 
 As noted above, deterioration can only occur where the air is already 
 cleaner than the NAAQS, and many areas of the United States are above these 
 standard levels. These regions (that do not meet Federal ambient air quality 
 standards) are called non-attainment areas. Although these regions must 
 
 *National Ambient Air Quality Standards 
 
D-25 
 
 Table 2 __ Significant Deterioration and Classes of Areas 1 
 
 (1) For any class I area, the maximum allowable 
 increase in concentrations of sulfur dioxide and particu- 
 late matter over the baseline concentration of such pollu- 
 tants shall not exceed the following amounts: 
 
 Maximum allowable increase (in 
 Pollutants micrograms per cubic meter 
 
 Particulate Matter: 
 
 Annual geometric mean 5 
 
 Twenty-four-hour maximum 10 
 
 Sulfur Dioxide: 
 
 Annual arithmetic mean 2 
 
 Twenty-four-hour maximum 5 
 
 Three-hour maximum 25 
 
 (2) For any class II area, the maximum allowable 
 increase in concentrations of sulfur dioxide and particulate 
 matter over the baseline concentration of such pollutants 
 shall not exceed the following amounts: 
 
 Maximum allowable increase (in 
 Pollutants micrograms per cubic meter 
 
 Particulate Matter: 
 
 Annual geometric mean 19 
 
 Twenty-four-hour maximum 37 
 
 Sulfur Dioxide: 
 
 Annual arithmetic mean. 20 
 
 Twenty-four-hour maximum. 91 
 
 Three-hour maximum 512 
 
 (3) For each class III area, the maximum allowable 
 increase in concentrations of sulfur dioxide and particulate 
 matter over the baseline concentration of such pollutants 
 shall not exceed the following amounts: 
 
 Maximum allowable increase (in 
 Pollutants micrograms per cubic meter) 
 
 Particulate Matter: 
 
 Annual geometric mean 37 
 
 Twenty-four-hour maximum 75 
 
 Sulfur dioxide: 
 
 Annual arithmetic mean 40 
 
 Twenty-four-hour maximum 182 
 
 Three-hour maximum 700 
 
 ^Environment Reporter , 71:1135, 
 
D-26 
 
 progress toward attainment of NAAQS according to a timetable set in their 
 state implementation plan, the Clean Air Act provides a way for such areas 
 to change their industrial mix by exchanging emissions from an existing 
 emitter for emissions from a new emitter (new plant) , if the result of the 
 exchange will bring the area closer to the NAAQS. Such an exchange is 
 called an "offset," and it provides the only way in which new plants or 
 expansions can locate in a non-attainment area, unless their emissions are 
 below the EPA minimum of 50 tons of all pollutants per year, the EPA 
 dividing point between major and minor emitters. 
 
 This discussion has been somewhat simplified, but the important point 
 is that state development agencies are going to have to follow closely the 
 monitoring data which tells them what is an attainment and what is a non- 
 attainment area in their state. Now more than ever, the industrial develop- 
 ment agency will be coordinating with the air pollution agency in each 
 state. Once attainment areas are identified, their designation as Class I, 
 II, or III will provide an indication, but not an absolute determination, 
 of what types of plants can locate there. 
 
 The location implications are significant both for the attainment 
 concept and also for the area class concept. If a plant which wishes to 
 locate in an attainment area, plans to install the Best Available Control 
 Technology (BACT) equipment, it must still obtain a permit from EPA if its 
 emissions will be over 50 tons a year even with BACT. Among the factors 
 to be considered in deciding on a permit, air pollution computer models are 
 noteworthy since they provide a link between the plant's emissions and their 
 impact on the ambient air quality. When approaching EPA, it would seem 
 advisable for applicants to have alternate sites identified, since EPA has 
 indicated that shifts in location of as little as one or two miles can make 
 a difference in the air pollution modeling results. 
 
 2.2.3 Enforcement 
 
 The permit to construct procedure provides the major enforcement feature 
 af the Clean Air Act. If the state implementation plan has not been approved 
 by EPA, then no permits can be issued, although the state may approve 
 locations of sources emitting less than 50 tons/year. Other enforcement 
 features include the EPA's power to bring a civil suit or assess a civil 
 penalty against any person whose facility is in violation of a state plan; 
 power to prohibit construction of a major source in a state which is not 
 implementing its state plan, and power to require posting of a bond if a 
 plant is under order to cease polluting, which must be forfeited if the 
 pollution continues. The enforcement powers are stronger than in the 1970 
 Clean Air Act, although most of them have come into use during the past 
 three ; to four years of regulation and practice. 
 
D-27 
 
 2.3 Requirements for States and Other Agencies 
 
 2.3.1 Designation of Classes of Areas 
 
 The 1977 Clean Air Act defines three classes of areas which may be 
 used to subdivide attainment areas. Each of these classes has certain 
 implications for industrial location. Most areas in Class I are likely to 
 be parks or publicly-owned forests, so that there would be no industrial 
 sites there anyway. A state may designate any area as Class I, however, 
 so that some development is possible as long as the Class I increments are 
 not exceeded (see Section 4.2 below). All other areas automatically become 
 Class II under the Clean Air Act, but states can redesignate an area to 
 Class III if they follow certain procedures. Industrial development 
 agencies will need to become familiar with their own state's redesignation 
 procedures, and it is very likely that EPA will be watching redesignation 
 to Class III very closely. 
 
 2.3.2 State Implementation Plans 
 
 Looking at a broader regional context, state implementation plans have 
 undergone review and revision since 1973, especially with regard to the 
 requirement for a PSD feature or component. The 1977 Clean Air Act required 
 that plans be resubmitted with provisions for permit granting, designation 
 of areas by classes, and the attainment of NAAQS in all Air Quality Control 
 Regions (AQCR) . The states are put into the dilemma of whether to designate 
 in their State Implementation Plans / (SIP) any area as a Class III, or whether to 
 leave all AQCR' s as either Class I or Class II as specified by the Clean Air 
 Act. 
 
 Although most states will probably be tempted to get a few areas into 
 the Class III category as soon as possible, they must face the possibility 
 that such an attempt could slow the preparation of their revised SIP which 
 is supposed to be submitted to EPA by January, 1979. A more feasible course 
 of action would be to get the revised plan in quickly and at the same time 
 to begin setting up an institutional structure for redesignating to Class III, 
 any AQCR or other area which the state desires to set aside for faster 
 development. 
 
 2.3.3 Cost Analysis of Alternate Locations 
 
 Diffusion modeling is likely to be necessary before new plants are 
 constructed (especially in non-attainment areas) , and such modeling could 
 become a cooperative effort by states and industry. In testing alternative 
 sites through use of a diffusion model, the firm viewing the locations will 
 need to know the other cost factors which must be balanced against the air 
 pollution restrictions. Most states will have data on alternative sites, 
 
D-28 
 
 and some will probably find it useful to model the diffusion features of 
 each site as part of their site marketing approach. 
 
 2.3.4 Meteorologic Modeling 
 
 The NAAQS are well specified with respect to monitoring and measurement 
 procedures. The objective of diffusion and/or other meteorologic modeling 
 is to analyze impacts of emissions on air quality. The choice of a model 
 and the choice of input data on weather will always be subject to some 
 judgment. Presumably, the states and individual firms would wish to develop 
 data on site-specific weather conditions. 
 
 2.4 Probable Requirements for Firms 
 
 In order to support a permit request, a plant or firm must have an 
 emissions inventory or a "design emissions inventory." There has been some 
 debate on whether this information would violate confidentiality and degrade 
 the competitive position of the firm. The inventory is submitted first to 
 the state level so that the confidentiality problem must first be solved 
 there, and EPA must necessarily rely on state agencies to a considerable 
 extent. 
 
 An important impact of the Clean Air Act of 1977 could well be the 
 discouragement of firms from going through the process of looking for new 
 sites, since they will have to negotiate with a state or city on the site 
 and then review their alternatives. Only after submitting a proposed 
 emissions inventory will a state be able to identify definite sites which 
 could be acceptable. For certain types of industries, each state could 
 build a "site bank," based on assumptions about probable plant designs. 
 
 2.5 Importance of Geographic Scale in Corporate Location Decisions: 
 How to Compare Potential Regulatory Costs 
 
 Except in the smallest, most developed states, it is reasonable to 
 assume that there will be a supply of sites in the Class II category, so 
 that the preferences of firms can still be dominant in the industrial 
 location process. The assumption is that an AQCR will be large enough 
 to afford many plant choices and that once a plant has made a regional/ 
 state location choice, the supply of sites will be numerous. Thus, the 
 firm searching for a location would not automatically rule out a region 
 or state because it had some no n- attainment areas. 
 
 Although every region and state is likely to have some Class II areas, 
 the sizes and configurations of these areas will vary from state to state 
 and among various extremes . In other words , the variation in traditional 
 site features will be much greater than variation in air pollution features, 
 
D-29 
 
 which will be limited to the class designation, and fundamentally, the 
 ambient air quality. A given site can have many characteristics of accessi- 
 bility and potential value, but with respect to air quality there are only 
 four categories: Class I, II, III, or non-attainment. 
 
 Thus, the problem of characterizing each state by the general avail- 
 ability of attainment areas arises. If the location decision is approached 
 incrementally, the industrial decisionmaker might well rule out some states 
 or even regions if he were informed that "X percent of their AQCR's were 
 non-attainment." Not only would a preliminary decision based on such infor- 
 mation be of questionable validity, but it would also introduce a bias into 
 the site selection process which would probably be undocumented and unmea- 
 surable. In other words, the decisionmaker would be making a subjective 
 judgment about the importance of the percent of non-attainment areas, when 
 the main question before him is how suitable are the one or more sites 
 which are available. 
 
 2.5.1 Comparison and Selection of Multistate Regions with Respect 
 to Air Quality And/Or Regulatory Stringency 
 
 The simplest way to compare states and regions on air quality is by 
 looking at the number of Standard Metropolitan Statistical Areas (SMSA's) 
 or AQCR's which are non-attainment according to EPA progress reports. 
 This would be a simplistic measure, but it could be made more sensitive by 
 measuring the percent away from attainment on one or more pollutants . There 
 would still be some possibility of bias, but choice criteria could be made 
 reasonably objective. 
 
 A further indicator of potential regulatory costs would be some 
 measure of the stringency of the state's SIP with respect to the level of 
 air quality. A state with a short timetable for achieving NAAQS and/or air 
 quality standards requiring cleaner air than NAAQS would be a state with 
 high potential regulatory costs. Data are available on these features of 
 SIP's for the 1972-1973 plans. Under the 1977 Clean Air Act, these SIP's 
 must be revised by January, 1979, so that new analyses and comparisons will 
 be required. 
 
 2.5.2 Review and Selection of Specific Sites With Respect to 
 Pollution Control Costs and Other Costs 
 
 As noted in previous Sections (2.3 and 2.4), both private firms, as 
 well as public agencies, go through a site selection and analysis procedure 
 from opposite sides of the site market. Both look for some optimal set of 
 sites according to very similar criteria. Furthermore, they are operating 
 at multiple geographic scales: multistate, state, multicounty, county, 
 and subcounty. In assessing alternative site costs, including pollution 
 regulation costs, they may choose alternative sites for comparison at 
 various scales. For example, a regional commission (Appalachian, Coastal 
 
D-30 
 
 Plains, etc.) might choose two or more alternative states, or might choose 
 a dozen sites among states, with the site size varying from one to a thousand 
 acres. The application of a pollution control cost procedure to multiple 
 sites will vary with the geographic scale of the sites, unless all of the 
 sites have been reduced to a very small (e.g., one acre) size. 
 
 The reason for such variation is that selection among larger areas 
 requires some kind of merging or averaging of data on air quality, while 
 selection among very small sites could involve only one monitor, possibly 
 a monitor some distance from the proposed site (under the 1977 Clean Air 
 Act, however, EPA can require monitoring to determine baseline air quality 
 for a given site) . Thus, from an air pollution control viewpoint, it is 
 convenient to narrow selection to a few very small alternative sites. But 
 industrial decisionmakers must often make larger area (regional) decisions 
 first. 
 
 Under such conditions, corporate decisionmakers wish to optimize their 
 chances of finding a suitable Class II or Class III site while making a 
 regional-level decision on the basis of markets, raw materials, or other 
 factors. The state agency which can offer credible assistance in such a 
 task will be warmly regarded. 
 
 2.5.3 Iterative Decisionmaking and Reconsideration of Alternatives: 
 The Use of Decision Models 
 
 Credible assistance from a state agency which is actively working to 
 attract industry means some logical, systematic (probably automated) proce- 
 dures for comparing the many factors in the decision framework, including 
 pollution costs, with each other. The state agency must be able to respond 
 to the decision process of the firm and to present cost analyses using 
 current data which are specific to the interindustry structure in its 
 immediate region. In other words, the state must know the buying, selling, 
 and operating costs the firm will face, as well as the regulatory costs. 
 
 Admittedly, the precision of a typical input-output model would not 
 show much difference in payments when two alternative sites which are two 
 miles apart are compared. In any comparison, the model must first be 
 adjusted to reflect different supply and market structures with respect to 
 location, if such exist. 
 
 An approach similar to that suggested above is described by Miernyk 
 and Sears (1974) using the West Virginia SIP as a basis for assessing 
 pollution control strategies, and also for assessing the feasibility of 
 locating a coal gasification plant in West Virginia. The analysis performed 
 used an input-output model, but the model is for the state-level economy 
 and does not solve the problem of which of the ten AQCR's within the state 
 would be the most suitable site. Although the study could be called an 
 academic exercise, the report includes the following conclusion: 
 
D-31 
 
 What conclusions with respect to regional economic 
 development can be derived from the simulation of 
 coal gasification processes in West Virginia? First, 
 when large sums of money are being expended for the 
 development of coal gasification processes, simulation 
 might provide useful guidelines for the allocation of 
 research funds. Clearly, these allocations cannot 
 be based entirely on economic analysis. The tech- 
 nological feasibility of each of the processes must 
 also be taken into account. But if there is no 
 reason for choosing between the two processes simu- 
 lated in this study on technological grounds, a 
 strong case can be made for the f luidized-bed 
 process on economic grounds. It would generate more 
 new employment, and the end product — electricity — 
 would be produced at lower unit costs. 
 
 2.6 How Serious Can the Impacts of These Regulations Be? 
 
 In a recent letter (July 6, 1978) from Mr. John F. O'Leary, Deputy 
 Secretary, Department of Energy (DOE) , to Mr. Douglas Costle, Administrator, 
 EPA, relative to the potential inflationary, and other unintended economic 
 consequences of EPA's proposed revisions of New Source Performance Standards 
 (NSPS) for electric utility boilers, DOE's proposal which leads to "slightly 
 higher overall emissions," is seen to offer these locational differences: 
 
 One benefit ascribed to the EPA staff proposal is 
 that it would allow more industrial growth to take 
 place within the constraints of air quality standards. 
 As we read the Clean Air Act, however, the purpose of 
 NSPS is to establish minimum national performance 
 standards. The PSD program is intended as the 
 mechanism for allowing States to tighten emissions 
 control requirements beyond this minimum where this 
 is necessary to make room for growth. It seems to 
 have been the clear intent of Congress that this be 
 done by the States, through case-by-case determinations 
 of BACT. For NSPS to require maximum feasible controls 
 in all cases would essentially eliminate meaningful 
 State discretion in making these BACT determinations. 
 In our view, those who advocate that NSPS be used to 
 minimize emissions everywhere without regard to local 
 conditions appear to believe that States need to 
 be protected against themselves. A costly side effect 
 of providing this protection through stringent NSPS 
 would be the preservation of unneeded growth potential 
 in many areas — those where favorable terrain, meteo- 
 rology, and current air quality would allow anticipated 
 growth to take place at considerably higher emissions 
 rates than those proposed as NSPS by your staff. 
 
D-32 
 
 In sum, we believe that the economic and energy 
 savings of our proposal can be realized without 
 sacrificing air quality objectives or other national 
 goals. We therefore believe that the modifications 
 we recommend would strike a better balance among 
 the competing objectives which are affected by this 
 rulemaking. 
 
 We wish here only to recognize that significant industrial locational 
 variations are likely to result from differing interpretations and imple- 
 mentation of the Clean Air Act. Table 3 summarizes components of the 
 Clean Air Act legislation, the responsible agency, and some possible 
 impacts on energy programs.* Many if not most of these impacts are seen to 
 have locational, developmental, and/or economic consequences more generally. 
 The responsible agency and the "impacted" agency and function -- be it 
 Energy, Interior, or Transportation -- are only beginning to evolve and 
 coordinate interagency approaches to resolve the emerging conflicts. 
 
 Modified from U.S. Department of Energy, Office of Technology Impacts, 
 "Air Quality Regulatory Issues Impacting DOE Plans and Programs," July, 
 1978. 
 
D-33 
 
 Table 3 
 
 - CAA Actions, Responsible Agency, and Some 
 Possible Impacts 
 
 Ail tun 
 Name/ IV script Ion 
 
 AgKlKtf 
 
 Hespnnalhle 
 
 — ■ , , s 4* , C • *-» — = 
 
 Po.slble kiutrgy-KcUted 
 Impacts 
 
 UACT r.tii.irH nes 
 
 The IV77 Clean Air Act Amendment ■ require the ncv. 
 sources loc.ttlng in clean air (Prevention of Significant 
 Deterioration) areas use Heat Available Control Technolo- 
 gy (IIACT). HACT i» to be determined on a ca«e-by-ca*e 
 pollutant buM» for each iuurrr regulation jmlcr the I*rc* 
 vcnilon of Significant Deter ioration (l*SD) provisions of the 
 Act. 1 he applicable permitting agencies arc to conmder 
 energy, environmental and economic impact* In making 
 the ItACT determination. 
 
 EPA 
 
 The HACT requirement rrcHoi significant design con- 
 straints early In the application prove**. If KPA ques- 
 tions the ilt'Hicn decision, it may require the imircr to 
 redesign it* control technology. The preliminary dculgn 
 requirements for control lyitcnu will lengthen the time 
 and increase the cd«t of the permit prorchi and of energy 
 development, '1 he possibility of po*tt application redesign 
 further heightens th;*se problems. 
 
 CEO NFPA Regulations 
 
 The Council on Environmental Quality (CFQl hag proposed 
 regulations Implementing the procedural provisions of the 
 National Environmental Policy Act (NEPA1, primarily the 
 preparation of Environmental Impact Statements, These 
 regulations are designed to achieve uniformity, to reduce 
 paperwork and delays, and to produce better decisions. 
 
 CEQ 
 
 
 Class I Designation 
 
 • The Department of Interior (DOl> was required to iden- 
 tify mandatory Class I Federal areas (pristine areas 
 under the PSD provisions of the 1°77 Clean Air Act 
 Amendments) where visibility protection is impor- 
 tant. The list was to be recommended to EPA for 
 adoption. 
 
 • DOI has recommended a list of National monuments, 
 preserves, and "primitive" areas to EPA for redeeig- 
 natlon to Class I PSD areas. 
 
 DOI 
 DOI 
 
 In the April 10, 1078, listing in the Federal Register, it 
 specifically states that a rcdesignation to Class I will 
 affect all major emitting facilities (WKF) within 100 miles 
 of the area. If tin* MEF would cause a violation of the 
 increment the MEF may be subject to "relocation or 
 redesign". The Federal Rccisterdocs state that the pub- 
 lic interest will be addressed to see U it is better served 
 by the redesignation to Class I or by the retention of 
 Class II status so as not to affect the industrial and energ) 
 development in the area.. 
 
 Designation of Attainment Status 
 
 EPA was required to publish all areas in compliance with 
 the National Ambient Air Quality Standards (NAAQS) as 
 well as those not attaining the NAAQS. Areas in compli- 
 ance are designated PSD areas; those not in compliance 
 are nonattainment (NA areas. Areas having insufficient 
 data were classified as PSD areas. 
 
 EPA 
 
 The designations were based either on old (generally 197*1) 
 data or on modelling. This status report reflects the 
 discrepancies between modelling and real world monitor- 
 ing checks. Far more areas appear to be nonattaining 
 than were so designated by EPA. By designating the 
 status on a state-by- state basis artificial boundaries 
 were created. This resulted in an attainment area being 
 surrounded by nonattainment areas in states with adjoin- 
 ing borders. In actuality most of these areas are likely 
 to be nonattaining. 
 
 Modelling Guidelines 
 
 . EPA has prepared a Guideline on Air Quality Models 
 recommending the application of certain air quality 
 modelling techniques to air pollution control strategy 
 •valuations and to new source reviews. 
 
 EPA has prepared a Workbook for Comparison of 
 Air Quality Models, outlining mc;hods for determin- 
 ing the comparability of models proposed by • source 
 with the recommended EPA models. 
 
 EPA 
 EPA 
 
 In September 1978, a mechanism for periodic review of 
 the guidelines is to be set up by the American Meteoro- 
 logical Society (AMS), The review will be subject to 
 public scrutiny. 
 
 The Comparison Workbook establishes the EPA models 
 as the standard and then evaluates the assumptions with- 
 out regard to actual performance. A challenge to EPA's 
 modelling assumptions will result in delay in the review 
 process. 
 
 Monitoring 
 
 , Under the PSD provisions of the Act and EPA's im- 
 plementing regulations, there are requirements for 
 ambient air quality and meteorological data to be col- 
 lected In support of a permit application. EPA is pre- 
 paring guidelines for determining the number of mon- 
 itoring sites and the length of the monitoring period 
 necessary. Criteria for siting of monitors *nd for 
 quality assurance is also outlined. 
 
 * The Act requires EPA to establish a uniform air qual- 
 ity monitoring system throughout the U.S. EPA is 
 developing regulations revising existing state and 
 local air pollution monitoring networks with standard- 
 Iced monitoring methods and quality control. 
 
 EPA 
 EPA 
 
 Under present regulations wide latitude is given to EPA 
 to determine when monitoring will be required for new 
 source review. 1 be PSD regulations specify that moni- 
 toring will only be required when modelling determines 
 that there is a threat to the NAAQS. 
 
 National Ambient Air Q-iallty Standards 
 
 Under the |*)77 Clean Air Act Amendments, EPA Is re- 
 quired to nuke any necessary revision* to existing Nation- 
 al Arnhlent Air 0*i*llty SUmJafln (NAA(/S| (for SO , 'ISP, 
 
 1IC, CO, I'hotochrif.ictl oxidants, NO ) *f\'l to prot'nuluatr 
 any new standards for additional poll^Tants of concern. 
 M'A Is specific illy required to promulgate a NO (short- 
 term) standard If m*f-dfff. 
 
 EPA 
 
 
 
 
 
D-34 
 
 Table 3 -- CAA Actions, Responsible Agency, and 
 Some Possible Impacts (continued) 
 
 Action 
 
 Agency 
 
 Possible Energy-Related 
 
 Name/ Description 
 
 Responsible 
 
 Impacts 
 
 National AmMrnt Air <>■ *llly Si md.irdfl (continued) 
 
 EPA 
 
 
 . Lead; 
 
 , Fhotnchemlc.il oxidants: EPA has pro- 
 
 
 The relaxation was subject to Intense Internal FPA debate 
 
 posed a revision to the standard origin* 
 
 
 snd as proposed is Insignificant. In actuality the 0. 1 stan- 
 
 •lly promulgated February Id, 1975; 
 
 
 dard not to be exceeded more than 3 times In 3 years may 
 be more stringent than the 0.03, 1 hr. average standard. 
 The oxidant standard impacts all energy facilities. 
 
 . NO, (short-term): The r.incr for the standard 
 
 
 A PSD increment (due two years after the NAACS) could 
 
 umfi-r consideration by EPA is 0. 25-0. 50 ppm or 
 470-940 ug/m , 1 hr. average, EPA lavs this 
 
 
 be so small as to prohibit the construction of any norm- 
 
 
 ally sized facility. 
 
 will provide a margin of safety to protect the 
 
 
 
 public, including sensitive individuals such as 
 
 
 
 asthmatics. 
 
 
 
 . NO (annual): EPA plans to revise the original 
 
 
 Depending on the revision chosen it may result in sig- 
 
 standard. 
 
 
 nificant size limitations for energy facilities. 
 
 a CO: F.PA plans to revise the original standard 
 
 
 
 promulgated February 18, 1975, (9ppm, 8 hr. 
 
 
 
 average; 35 ppm, 1 hr. average). 
 
 
 
 • SO2: EPA plans to revise the original standard. 
 
 
 Speculation continues as to whether the ultimate promul- 
 gation of a sulfate standard will result in the dropping of 
 the SO. standard. 
 
 • TSP (particulates): EPA plana to revise the 
 
 
 The TSP standard may be replaced by a "fine particulate 
 
 original standard. 
 
 
 standard". This could result in the need for a major re- 
 design of control technology. 
 
 NESHAPS 
 
 
 
 Under Section 112 of the Act, EPA Is required to first list 
 
 EPA 
 
 
 any hazardous air pollutants for which it intends to estab- 
 
 
 
 lish a standard and then to promulgate emission standards 
 
 
 
 for their control. 
 
 
 
 • Asbestos: EPA has revised the original standard. 
 
 
 
 • Benzene: Benzene was listed as a hazardous air 
 
 
 Any standard for benzene could be constraining for coal 
 
 pollutant and ia under "Health Risk" assessment 
 
 
 technologies leading, for example, to the regulation of 
 
 by EPA 
 
 
 solvent refined coal processes and coke plants. 
 
 • Arsenic: Arsenic was listed as a hazardous air 
 
 
 
 pollutant. 
 
 
 
 • Sulfates (SO4): Sulfate was listed as a hazardous 
 
 
 A sulfate standard would impact upon all fossil-fuel 
 
 air pollutant and la under "Health Risk." assess- 
 
 
 burning plants. 
 
 ment by EPA. 
 
 
 
 • Radionuclides: Radionuclides was listed as a 
 
 
 Much of Western Coal is found in or near uranium areas 
 
 hazardous air pollutant. 
 
 
 resulting in the emission of radiation. These emissions 
 arc currently uncontrolled. 
 
 New Source Performance Standards (NSPS) 
 
 
 
 The 1977 Clean Air Act Amendments require that EPA 
 
 EPA 
 
 
 promulgate standards of performance of new categories of 
 
 
 
 stationary sources and that EPA review NSPS every four 
 
 
 
 years and revise them when necessary. The NSPS will be 
 
 
 
 an emission limitation except in the case of fossil fuel 
 
 
 
 fired stationary sources where the standard must combine 
 
 
 
 emissions limitations with percentage reduction in emis- 
 
 
 
 sions. Both must be achieved through the application of the 
 
 
 
 best technological system of continuous emission reductior 
 
 
 
 taking Into account any energy, environmental and econom- 
 
 
 
 tmpacte. 
 
 
 
 • Petroleum Liquid Storage Vessels: EPA 
 
 
 
 revised the original standards. 
 
 
 
 • Petroleum Refineries: The original stan- 
 
 
 
 dard of March 8, 1974, was amended March 
 
 
 
 15, 1978, to include Claus Sulfur Recovery 
 
 
 
 Plants. 
 
 
 
 • Fossil Fuel Steam Generators < Pollers): 
 
 
 EPA Intends to apply this new standard to developing 
 
 EPA Is required to revise the original 
 
 
 energy technologies such as fluidlzed bed combustion 
 
 Standard of June 14, 1974 (amended 11/22/76). 
 
 
 boilers and boilers fired with synfuela. Depending on the 
 stringency of the emissions limitations, the standard 
 could affect Implementation of these technologies. The 
 SO, standard applicable to Western coals could affect 
 the choice of coal for new hollers hence coal markets. 
 Coal may have to be exported great distances from the 
 mine affecting oil usage in transportation. 
 
D-35 
 
 Table 3-- CAA Actions, Responsible Agency, 
 
 and Some Possible Impacts (continued) 
 
 Action 
 N*mii«*/ Description 
 
 Prrforw.incf St.iiularHs (continued) 
 
 Stationary Gas Turbines: EPA has proposals tn 
 this standard fur ►: » s turbin«*# to bo ustd in con- 
 Junction with steam gorif rator». 
 
 Internal Combustion Engines for Stationary 
 Source*: EPA wilt proposv regul.ttionti to require 
 the application of be*t demonstrated control tech- 
 nology to control emissions iron* stationary in- 
 ternal combustion engines. 
 
 Sulfur Recovery in Natural Gas Fields: F.PA will 
 propose this standard to control emissions of 
 total reduced sulfur (IRS). 
 
 Industrial Boilers: EPA's revision of this stan- 
 dard for utility electric steam generators will not 
 apply to industrial boilers in any size range. How- 
 ever, EPA has studies currently underway, in 
 preparation for a proposal of a companion NSPS 
 whLxh will apply to individual boilers. Industrial 
 boiler classes under consideration are typical 
 fossil-fuel fired boilers, fludized bed combustion 
 boilers. And waste-fired boilers. 
 
 EPA Is required under the Act to prepare a prior- 
 itized list of major stationary sources for which 
 New Source Performance Standards must be pro- 
 mulgated within four years. Included in an early 
 version of the list are: 
 
 • • Crude Oil and Natural Gas 
 
 Production Plants; 
 
 • • Mixed Fuel Boilers (Coal 
 
 and Refuse}; 
 Mixed Fuel Boilers (Oil 
 and Refuse); and 
 .. Uranium Refineries. 
 
 Agency 
 Responsible 
 
 Possible Energy -Relate*! 
 Impacts 
 
 EPA 
 
 Use of industrial boiler fuels and technologies will be 
 directly Impacted by this standard. 
 
 Depending upon the source category and the schedule 
 for development of the regulation, this timetable may 
 heavily impact on the development of specific energy 
 technologies. 
 
 Nonattainment 
 
 EPA has provided SIP revision guidance establishing 
 criteria for approval of plans for nonattainment areas 
 in order to assure attainment. 
 
 EPA la in the process of revising its Emissions Off- 
 set Policy for Nonattainment Areas of December 21, 
 1976. 
 
 Briefly, for new sources to obtain a construction per- 
 mit In nonattainment areas they must: 
 
 1. Obtain offset emissions greater than 
 one for one; banking of offsets to save 
 lor future growth would be allowed. 
 
 2. Demonstrate reasonable further pro- 
 gress toward attainment. 
 
 3. Comply with Lowest Achievable Emis- 
 sion Rate (LAER). 
 
 4* Demonstrate compliance of all other 
 sources owned by the applicant. 
 
 Any NA regulations will affect all energy-related facilities 
 
 New sources will need to obtain offsets while older sourc- 
 es will have to develop ways of reducing emissions. 
 These time and economic constraints could severely 
 limit growth in NA areas. The energy industry may be 
 constrained by state limits placed on future growth in 
 particular regions. 
 
 Prevention of Significant Deterioration (PSD) 
 
 Under the Clean Air Act Amendments of 1977, EPA is re- 
 qutrcd to promulgate regulations to prevent significant de- 
 terioration of air quality in attainment areas. Final regu- 
 lations and SIP guidance for PSD have been promulgated. 
 Increments for SOj and TSP for allowable growth over 
 baseline air quality have been established in three classi- 
 fications of areas (I. U, III). 
 
 There is a general exemption to this review process - 
 when a source will have an increase in '* allowable" factual 
 aftsr controls) emissions of less than SO tons/year. 
 
 # The Act requires that EPA promulgate PSD 
 regulations for all other pollutants for which 
 there are NAAOS <HC. CO, Oxidants, NO ). 
 
 EPA 
 
 The new source review process requirement for major 
 stationary source owners and operators may delay the 
 Issuance of construction permits due to the uncertainties) 
 about the length and type of monitoring. Energy growth 
 and development, especially in western areas may be 
 limited due to the rough terrain and Class I area restric- 
 tions. There may be extensive impact upon the design 
 requirements of new source construction and existing 
 • ource modification, due to the requirements for iVest 
 Available Control Technology. The pending regulation* 
 for other pollutants may severely constrain energy de- 
 velopment (a. g. , NO2 «nd oxidants). 
 
D-36 
 
 Table 3 -- CAA Actions, Responsible Agency, and 
 Some Possible Impacts (continued) 
 
 Anion 
 Name/Descr I pi ion 
 
 Agency 
 
 Kesponwiblo 
 
 Possible Energy- Ue laled 
 Impact* 
 
 Tall Stacks 
 
 Tin* l*>77 Clean Air Act Amendments require EPA to pro- 
 mulgate regulations implementing lite provUInn limiting 
 tbc use. of taller stack* instead of pollution control equip- 
 ment. 
 
 EPA 
 
 New source siting In rough terrain may be discouraged 
 since allowable slack heights are not sufficient to over- 
 come terraine impact. 
 
 Visibility 
 
 • EPA la required under the Act to prepare a report 
 to Congrem discussing visibility protection. 
 
 • EPA It required to prep. ire guidelines for states to 
 address visibility problems in their SIPs. 
 
 EPA 
 
 If Congress intends to provide visibility protection for 
 areas outside Class I regions that are visible from 
 Class I regions, western energy development may be 
 restricted. Those areas redesignated Class 1 areas 
 may restrict energy development. The requirement for 
 Best Available Retrofit Technology may lead to costly 
 and lengthy delays. Visibility protection could lead to a 
 fine particulates standard winch would require the re- 1 
 design of all air pollution control devices. 
 
D-37 
 
 3.0 USE OF ANALYTIC DECISION-ASSISTING LOCATIONAL MODELS 
 
 We touch in this section upon three of the ways in which analytic 
 models can assist in the locational decisionmaking processes which, we have 
 seen, are likely to be made more complex as the result of air pollution 
 control legislation and its implementing regulations: 
 
 • Models to determine the regional economic effects, 
 ex post / as well as ex ante ; 
 
 • Ways to build regulatory requirements into locational 
 decisions; and 
 
 • Ways to include "normative" (value) considerations. 
 
 These, by no means, exhaust the variety of models which may become increas- 
 ingly useful. For example, there are a large number of site location models, 
 both descriptive and optimizing in nature, which are used to determine 
 preferred or "best" intra-areal locations. However, most of these other 
 analytic modeling applications are variants of those discussed in this 
 section. 
 
 3.1 Models to Examine Regional Economic Effects 
 
 The assembly of data on specific case studies of the impact of environ- 
 mental legislation on location decisions and urban growth is an important 
 area of investigation that has been discussed elsewhere in this report 
 (Sections 4.1 and 4.2, below). In this section, we examine broader, more 
 analytical approaches to predicting the impact of environmental standards 
 on urban and regional growth. 
 
 The models examined in this section view the fluctuations in regional 
 economic activity in continuous forms, rather than in the discrete terms 
 that characterize individual plant closings and openings. They are, none- 
 theless, important tools for analyzing the impact of pollution abatement 
 regulations on urban and regional growth. There are several reasons for 
 this. First, as pointed out earlier, there is evidence that plant decisions 
 to expand/contract output and employment play a more important part in 
 regional growth than the birth of new firms or decisions by existing firms 
 to close down or relocate. And the variations in economic activity of 
 different industry groups are quite susceptible to analysis using econometric 
 and other modeling methods. Second, the use of a model enables one to see 
 in a quantitative way the importance of abatement costs relative to other 
 factor input costs, including labor costs, tax costs, and the importance of 
 regional variations in climate and other factors (including the importance 
 to environmental quality itself as an attractive force) . 
 
 Another advantage of regional econometric models is their ability to 
 assess impacts on present and prospective state and local government revenues 
 
D-38 
 
 and expenditures. The impact of the Federal Water Pollution Control Act 
 Amendments of 1972 (PL 92-500) and the Clean Water Act of 1977 on state 
 and local finances, through the need to develop additional wastewater 
 treatment facilities, has been analyzed by Forbes and others. For 
 example, Table 4, taken from Forbes and Peterson, shows the significance 
 of the state and local share of capital expenditures on treatment facilities 
 relative to current borrowing levels. The resulting impacts for thirteen 
 selected states are shown in Table 5. 
 
 The cost estimates by state were taken from the 1976 EPA Needs Survey 
 and were based on the following assumptions : 
 
 First, the average annual expenditure, implied 
 by the total required outlays, was calculated 
 for the twelve-year period. The federal grant 
 share (75% of total costs) was subtracted to 
 find the combined state and local share of 
 expenditures. The state share (ranging from 
 to 25% of the total cost) was then subtracted 
 using the current formula for state aid. The 
 resulting figure was the local share of construc- 
 tion costs. /Total cost, state-local and local 
 shares grouped by EPA region for_ Categories I 
 through V are shown in Table 4 V 
 
 The results in these tables suggest that significant upward pressure 
 on interest rates in bond markets will be felt by local governments, especially 
 in the thirteen states listed. ' To some extent, these pressures will be 
 ameliorated by increased real growth in the regional economies, thus increas- 
 ing the ability of the region to absorb new issues. Nevertheless, the results 
 do suggest that environmental legislation have differential impacts directly 
 on state and local finances. Similar analyses could be performed for munic- 
 ipally-owned facilities subject to air pollution control legislation. More- 
 over, changes in regional activity that result from firms' locational decisions 
 (including decisions to change output and employment levels at an existing 
 site) have important indirect effects on state and local finances. The over- 
 all analysis of these is perhaps best handled by an econometric model which 
 simulates the responses of different sectors of the economy to changes in 
 
 factor costs (including abatement cost) . This production factor approach is 
 discussed further in Section 3.2. 
 
 * 
 Forbes, R. W. , and J. E. Peterson, "The Costs of Clean Water," Parts I 
 
 and II, Special Report, The First Boston Corporation, 1978. 
 
 ** 
 
 Categories I through V represent Secondary Treatment, Higher Than 
 
 Secondary Treatment, Correction of Infiltration/Inflow and Sewer Rehabilitation, 
 
 New Collection and Interceptor Sewers, and Control of Combined Sewer Overflow. 
 
 * * * 
 
 The inclusion of yet another category of costs, that of stormwater 
 
 control and treatment, would increase the significance of the impacts. (See 
 
 Forbes and Petersen, op. cit. ) 
 
D-39 
 
 Table 4: I976 Needs Survey Forecasts for Municipal 
 Wastewater Treatment Facilities 
 
 EPA Average Total 
 Region Expenditure 
 
 FY 1977—1988 
 Categories I through V 
 
 (millions of 1976 dollars) 
 
 Combined 
 S&L Share 
 
 Local Share 
 
 S&L Share as 
 % of Total 
 
 Local Share as 
 % of Total 
 
 S&L Borrowing Local Borrowing 
 
 I 
 
 II 
 
 III 
 
 IV 
 
 V 
 
 VI 
 
 VII 
 
 VIII 
 
 IX 
 
 X 
 
 Total' 
 
 $ 648.9 
 1480.5 
 915.8 
 975.8 
 2036.9 
 392.1 
 392.8 
 114.4 
 585.0 
 345.5 
 
 $7887.0 
 
 $162.3 
 
 325.2 
 
 228.8 
 
 244.0 
 
 509.3 
 
 98.0 
 
 98.3 
 
 28.6 
 
 148.8 
 
 86.4 
 
 $1971.2 
 
 $ 60.6 
 
 178.3 
 
 178.3 
 
 196.3 
 
 424.9 
 
 96.5 
 
 61.7 
 
 25.1 
 
 80.3 
 
 52.5 
 
 $1354.3 
 
 8.38% 
 
 6.15 
 
 6.88 
 
 7.74 
 10.87 
 
 4.05 
 10.22 
 
 4.45 
 
 6.32 
 
 4.73 
 
 7.33% 
 6.07 
 8.85 
 9.16 
 12.80 
 5.16 
 7.12 
 4.63 
 4.78 
 4.55 
 
 7.27% 
 
 7.81% 
 
 ■Excludes Puerto Rico and the Virgin Islands in Region II; District of Columbia in Region III and Samoa, 
 Guam and Pacific Territories in Region IX. 
 2 Average borrowing 1973-1976 
 
 Source: Forbes and Petersen, op. cit. , (Vol. II, p. 7). 
 
D-40 
 
 Table 5: States Where State and Local Average Annual Share 
 of Capital Expenditure Exceeds Ten Percent of Total 
 State and Local Borrowing (Categories I through V) 
 
 State 
 
 Maine 
 
 New Hampshire 
 
 Rhode Island 
 
 Vermont 
 
 West Virginia 
 
 Georgia 
 
 Indiana 
 
 Michigan 
 
 Ohio 
 
 Arkansas 
 
 Iowa 
 
 Missouri 
 
 Idaho 
 
 
 S&L Share 
 
 Local Share 
 
 EPA 
 
 AS% OF 
 
 AS% OF 
 
 Legion 
 
 S&L Borrowing 
 
 Local Borrowing 
 
 
 18.2 
 
 16.2 
 
 
 23.2 
 
 8.4 
 
 
 14.4 
 
 11.5 
 
 
 16.8 
 
 24.1 
 
 HI 
 
 12.7 
 
 14.0 
 
 IV 
 
 10.2 
 
 14.9 
 
 V 
 
 19.1 
 
 14.6 
 
 V 
 
 12.1 
 
 12.4 
 
 V 
 
 17.3 
 
 26.9 
 
 VI 
 
 19.6 
 
 22.1 
 
 VII 
 
 12.7 
 
 14.0 
 
 VII 
 
 22.6 
 
 10.3 
 
 X 
 
 30.2 
 
 14.1 
 
 Source: Forbes and Petersen, op. cit. , (Vol. II, p. 8) 
 
D-41 
 
 Regardless of what the results of any econometric approach tell us, 
 however, municipalities will have to face a series of institutional/organi- 
 zational issues in order to counteract potential negative effects of 
 pollution regulations. These effects could come either from air pollution 
 or water pollution regulations. The NSPS both for air and water are likely 
 to be more stringent than state laws have been. Thus, cities will face the 
 treatment cost requirements described above for water and industries 
 building or expanding will face requirements for scrubbers or other air 
 pollution control equipment. 
 
 The institutional/organizational issues arise from the municipalities' 
 traditional role as growth centers. Industrial growth within central cities 
 has led to many conditions including the typically higher costs of land in 
 these cities, as well as their present status as non-attainment areas. It 
 is possible to argue that the first of these conditions is a greater deter- 
 rent to the location of new industry than is the second condition. The 
 large area contained in the SMSA 1 s is an entirely different situation, 
 where many counties may contain less expensive industrial sites and these 
 sites may be within the NAAQS. 
 
 These SMSA potentials for industrial growth may be of little immediate 
 comfort to central city mayors in spite of the fact that some central city 
 residents will benefit. These mayors may also observe a relative lack of 
 concern for their plight, or at least a neutral view from state government 
 development agencies who have an entire state full of industrial sites, 
 many of which are within NAAQS, at their disposal. 
 
 Thus, the concern of municipalities over the 1977 Clean Air Act is 
 partly a reflection of traditional struggles between city, suburban, and 
 state level factors. The problem of difficulty in attracting new industry 
 to central cities could be alleviated if low cost land could be made avail- 
 able for expansion of existing central city industry which is held to the 
 immediate area by a large existing investment. The pollution regulation 
 problem could be alleviated by identifying as soon as possible what firms 
 are moving out, and by obtaining offset arrangements between the movers and 
 the stayers. 
 
 Here, the econometric analyses would be of help to mayors of munici- 
 palities by assisting in identifying firms which have lost a source of supply 
 or a market, or some production factor. If the sectors which are facing 
 such difficulties are identified, then the municipalities can plan their 
 public facility construction with plants in these sectors in mind. Thus, 
 interindustry econometrics could be applied to aid municipalities, as well 
 as states and regions. 
 
 Any plant which is thinking of leaving a central city must analyze the 
 costs of moving and staying, and the analytic models would also be useful 
 for such a purpose. The alternative costs of air pollution control would 
 not necessarily be much lower, however, even if the plant is moving to an 
 attainment area. If the plant's emissions could cause the air quality to 
 degrade beyond the allowable increment, or if the air in a Class I area 
 could be affected, then the plant would be required to install BACT or to 
 seek another site. 
 
D-42 
 
 Even if the plants in the East are tempted to move to areas of low 
 sulfur coal, they may not escape installation of scrubbers. The following 
 discussion is from a recent Federal Energy Administration (FEA) report (1977) 
 
 The Clean Air Act Amendments of 1977 require new 
 plant emission control which reflects Best Avail- 
 able Control Technology (BACT) . In many instances, 
 and particularly for S0 2 control on large coal- 
 fired boilers, BACT will be more stringent than 
 current NSPS. 
 
 Therefore, it is likely that the applicable assump- 
 tions for S0 X emission from new power plants will 
 be "90% below NSPS" for areas where low sulfur 
 coal is locally available (primarily in the West) , 
 and "50% below NSPS" for high sulfur coal areas 
 (Midwest and East) . The implications of BACT for 
 other pollutants and industries are uncertain at 
 present, but greater emission control than currently 
 practiced will undoubtedly be required. The result 
 will be a reduction in the constraints on plant 
 size and colocation. 
 
 What this report says is that even though so-called footloose urban indus- 
 tries will still be able to leave central cities, they will generally gain 
 few benefits in terms of reduced air pollution control costs. The types 
 of regional location impacts due to air pollution regulation will be more 
 complex than "scrubber versus non-scrubber, " and will probably involve 
 institutional features and the interindustry connections mentioned above. 
 The analysis of these connections is discussed further below. The annotated 
 bibliography included in this volume contains several references to the 
 traditional economic and regional science literature on factors affecting 
 the location of industry (Dolde, 1977; Harris and Hopkins, 1972; Hekman, 
 1978; McMillan, 1975; Miernyk and Sears, 1974; and Neutze, 1967). 
 
 The approaches have used a mix of the following techniques: 
 
 • Economic base and shift share, 
 
 • Input-output models, and 
 
 • Econometric models. 
 
 The discussion below first describes studies from the bibliography that have 
 treated the locational consequences of environmental legislation more 
 
 * 
 See also report by Roger J. Vaughan, "The Urban Impacts of Federal 
 
 Policies: Volume II, Economic Development," Rand Corporation, 1971. 
 
D-43 
 
 thoroughly than the others. The emphasis is on evaluating their strengths 
 and weaknesses. Second, we outline some of the features of a model that 
 would go beyond these approaches and capture the interregional aspects of 
 regional growth and its relationship to national growth. Such a model would 
 have important uses for analyzing the regional economic consequences of 
 environmental policy. 
 
 4c 
 
 Leitner and Emerson extend the traditional shift-share approach to 
 explaining regional growth by including environmental factors as explanatory 
 variables in an equation relating industry location shifts to traditional 
 production cost variables (labor costs, tax costs, material input costs, 
 agglomeration economies or diseconomies and market size) , as well as costs 
 of complying with pollution abatement regulations. The primary measures of 
 the latter are per capita air pollution control expenditures by each state, 
 per capita water quality control expenditures by state, and the availability 
 of public waste treatment facilities for use by industrial discharges. 
 Additionally, the availability of state pollution control bonds to finance 
 abatement expenditures was included as an explanatory variable. 
 
 The cross-section data on states was analyzed over the period of 1968- 
 1972 using single equation least square techniques for the following indus- 
 tries: Food and Kindred Products, Textile Mills, Paper Products, Chemical Products, 
 Petroleum Products, Primary Metals and Fabricated Metal Products. The 
 statistical results are fairly inconclusive, the most significant explanatory 
 environmental variable being expenditures on water quality standards 
 
 The study illustrates both the advantages, as well as significant 
 drawbacks on this type of modeling. By keeping the model structure simple, 
 all 50 states were analyzed with regard to the relative impact of environ- 
 mental legislation by region. However, the weaknesses of the data base make 
 it difficult to accept the validity of the results. In particular: 
 
 The measure for stringency of standards is total pollution 
 control expenditures by media for a single year, 1968 by 
 state. Aggregate expenditures by state governments appear 
 to have been used and not indus try-by- industry estimates. 
 While one of the data sources cited had developed regional 
 estimates of abatement costs on air industry-by-industry 
 basis, r this study had used national abatement cost functions 
 with regional estimates being developed using employment as 
 a proxy for industry activity. If the data from this study 
 
 * 
 Leitner, K. R. , and M. Jarvin Emerson, "Effects of State Pollution 
 
 Control Programs on Industrial Location" (undated mimeograph) . 
 
 Environmental Protection Agency, The Economics of Clean Water 1972 , 
 (1972) . The Environmental Protection Agency has done more recent studies 
 of the same type but with air and water pollution abatement costs analyzed 
 in a single study. 
 
D-44 
 
 were used, significant multicollinearity would have entered the 
 regression, thus making it difficult to interpret the individual 
 coefficients; 
 
 • The measure of the availability of municipal treatment plants to 
 industrial discharges — the number of treatment facilities per 
 capita — was not adjusted for (a) differences in the size of the 
 facilities from region to region, or (b) differences in use of the 
 municipal systems from one industry to another. Moreover, indus- 
 trial discharges that pretreat and use the system are required to 
 pay "user charges" to the public system. This was not incorporated 
 in the study; and 
 
 • The importance of state pollution control bonds were entered as a 
 dummy (0-1) variable without considering the extent to which such 
 financing was in fact used. 
 
 In summary, the study has attempted to introduce pollution control 
 standards into a conventional regional growth model. The results are incon- 
 clusive primarily because the data were lacking to discriminate important 
 differences across regions and industries in the incidence of pollution abate- 
 ment costs . More recent studies by EPA and others have significantly improved 
 estimates of the industry detail but the regional differences have been 
 examined only in a few industries where the existence of a few plants makes it 
 easier to bound the abatement alternatives and technology options available. 
 
 A promising econometric approach to assessing air pollution impacts has 
 been taken in a study by Lakshmanan and Lo (1971) . An econometric model was 
 developed for the 100 largest SMSA's and the impact of alternative air pollu- 
 tion abatement strategies analyzed. A general view of the model is provided 
 in Table 6. The model consists of three major blocks: 
 
 • A production function block that uses cross-section data (on 100 
 SMSA's at the 2-digit SIC level to develop Cobb-Douglas production 
 functions; 
 
 • A Keynesian-type regional income determination block that models 
 the relationship between industry activity, regional consumption, 
 income and government expenditures; 
 
 • A major element of the model is the link between regional and 
 national activity. As with most models developed in the early 
 1970s, a top-down approach to regional modeling is considered. 
 This approach has its origins in the export-base theory of regional 
 development which relates regional manufacturing activity (and 
 through its aggregate regional income) to fluctuations in corres- 
 ponding national totals (below we comment on some promising new 
 alternatives) . 
 
 The link between regional and national activity is through a rational 
 input-output model that determines national industry output as a function 
 of final demand. These national industry levels of output are then 
 
D-45 
 
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D-46 
 
 allocated on a share basis to the SMSA's and enter the regional production 
 function block, affecting regional income and employment. 
 
 The model was used in a simulation of the impact of alternative air 
 pollution control strategies. The air pollution control costs affect the 
 (national) supply curves of high emission industries and cut down production 
 levels in each SMSA; these generate a sequence of interregional effects. 
 Several different assumptions are made about the extent to which different groups 
 absorb the pollution control costs. As an example, under one simulation 
 the high emission industries are estimated to absorb the costs; this affects 
 profits which leads to changes in industry investment, regional income, and 
 regional unemployment rates. 
 
 The model is innovative, and, in a sense, still state of the art. 
 Improvements have been made in the conceptual design of regional models 
 since this study. The problem is that the data bases have not kept pace 
 with these developments nor have the analysis of regulatory impacts been a 
 particular concern of the regional econometricians. 
 
 Before turning to a discussion of some of the promising approaches 
 one could take here, it is worth summarizing the major weaknesses of the 
 Lakshmanan-Lo model: 
 
 • A static 1-0 model was used to forecast national industry 
 activity changes; 
 
 • A static regional share matrix was used to allocate national 
 shifts to the SMSA's; 
 
 • The tradeoffs between investment in abatement and facility 
 investment were not explicitly considered; and 
 
 • The impact of pollution abatement on inflation and the 
 differential impact of this on regional activity was not 
 considered. 
 
 A review of the above and many of the other regional econometric 
 models suggests that they are characterized by the following features: 
 
 • They tend to be satellite models driven by a national 
 model with a one-way causation from the national to the 
 regional component. The structure of these models (e.g., 
 Wharton, DRI) is, of course, highly complex and considerably 
 improved over the early static approaches evident in the 
 Lakshmanan-Lo model; 
 
 • Despite significant improvement they still tend to be built 
 around the economic base concept. There is, however, 
 increasing recognition of the myriad of variables that 
 affect the competitive position of the industry in the 
 region. Examples include wages, tax incentives, and 
 different policy instruments of Federal, state, and local 
 governments . 
 
D-47 
 
 • They tend to be demand driven. In several areas (energy, metal 
 resources, agriculture) , however, supply considerations are equally, 
 if not more important; 
 
 • Because of data considerations, the models focus around the output, 
 employment, and personal income nexus. Regional inflation and 
 investment are typically ignored in this analysis; and 
 
 • They tend to be largely recursive because factors outside the 
 regional economy have a major influence. There is little feedback 
 from the region to the Nation and only in a few cases is there 
 interaction with neighboring regions. 
 
 What then are the prospects for developing a model that would adequately 
 treat at an aggregate level the changes in regional activity resulting from 
 changes in pollution control standards. The discussion below summarizes 
 some of the main features of such a model. 
 
 • An integrated national-regional modeling approach should be 
 used. Variables like monetary sector variables, consumption, 
 fixed investment, inventory investment, imports and exports 
 are best handled at a national level. Likewise, the impact 
 of abatement expenditures on capital shortages and the trade- 
 offs between abatement and facility investment are logically 
 treated on a national level. However, employment wages, 
 personal income, retail trade and other variables are 
 determined at a regional level and aggregated to derive 
 national forecasts. 
 
 • National outputs are allocated to industries by region through 
 functions that include competitiveness variables, including 
 the dual role of the environment — with stringent standards 
 acting as a deterrent but a clean environment influencing a 
 positive effect. Where feasible, the recovery of municipal 
 abatement costs through user charges should be included in the 
 industry cost structure. 
 
 • Regional investment would be affected by national investment 
 and by various local variables including taxes, pollution 
 abatement regulations, etc. That affects distribution of 
 national investment among regions. 
 
 • Regional employment is influenced by regional industry output 
 but also considers (a) the cost of labor relative to their labor 
 costs, and (b) the need for labor to operate abatement facilities. 
 (Income and wages would also be modeled together with employment 
 at a regional level.) 
 
 • Regional energy costs are important to integrate into the 
 regional production function for two reasons. First, increasing 
 energy prices and regional differences in them due to limited 
 fuel resources are likely to play an important role in industry 
 location decisions. Second, a significant share of pollution 
 
D-48 
 
 abatement costs falls on the electric utilities sector. The 
 differences in fuel mix, as well as abatement standards by state 
 (as evident in the SIP's) result in differences in the extent 
 to which environmental regulations affect regional fuel prices 
 thus affecting industry location decisions. 
 
 These features are the bare outlines of the structure of a regional 
 model that could adequately estimate the impact of environmental standards 
 on regional growth and economic activity. Many questions remain to be 
 answered. These include: the appropriate level of regional and industry 
 detail, the availability of data, the appropriate national model to serve 
 as a starting point, and, finally, the specific policy instruments that 
 need to be explicitly included. 
 
 3.2 Use of Various Models to Build Regulatory Requirements Into Location 
 Decisions 
 
 Under the Clean Air Act of 1977, there is still the basic requirement 
 that states and regions make some decisions and set some policies about the 
 types of growth they wish to experience and the types of firms they wish to 
 attract. Thus, analyses are required of capital support tactics (state 
 supplied utilities, development bonds, etc.) and personnel and skills 
 availability. Environmental requirements, however, are not expected to 
 substantially affect the way a firm looks at these two factors in its 
 search for a location. 
 
 The location problem is sometimes reduced to the materials supply and 
 market access level, which tends to leave aside labor, capital, and regu- 
 latory spatial variations. Even where the multiplicity of factors is 
 recognized, it is unlikely to find an explicit location decision structure 
 which incorporates them (Table 7) . More traditional approaches to the 
 development of location models have dealt with distances from suppliers and 
 consumers, and weights for these distances which represent costs and prices 
 (Isard, 1974; Isard and Liossatos, 1972; Kohn, 1974; Moody and Humphrey, 
 1974; and Revelle, Marks, and Liebman, 1970) . 
 
 A review of this approach is provided by Webber (1972) , who presents 
 a model of the type: 
 
 m 
 Z * J3 (w.d..) + w d 
 
 where "n" possible production sites exist at a series of distances "d" from 
 a series of raw materials sites "m," and there is One consumption location 
 c. Thus d. . is a distance from a raw materials site to a possible production 
 site and d. is a distance from a possible production site to the consumption 
 center. The production site i must be chosen to minimize Z. The weight for 
 each raw material w. varies but is characteristic for each raw material, and 
 
 w c 
 
 is the amount of product needed at c. 
 
D-49 
 
 Table 7 
 
 Control System direct and looped relationships be- 
 tween decision-makers of various hierarchical levels 
 and each of the elements of the decision environment 
 
 SCALE 
 
 LABOUR 
 
 DECISION 
 MAKER 
 
 TRANSFER 
 
 CONSTRAINTS 
 
 AND 
 
 INCENTIVES 
 
 LAND 
 
 CAPITAL 
 
 DEMAND 
 
 AND 
 SUPPLY 
 
 Source: P. Toyne, Organization Location and Behavior , New York: 
 
 John Wiley, 1974, p. 15. 
 
D-50 
 
 Although such a model could perhaps solve a location problem for a 
 given firm, it does not reflect many factors which are equally as important 
 as materials and consumption locations, and it would require substantial 
 development to achieve that level of complexity. The model nevertheless 
 probably represents one portion of the decision process of relocating 
 firms . 
 
 3.3 Strategies for Adding Regulatory Constraints To Location Models, 
 and For Model Applications 
 
 Substitutions are certainly possible in the definitions of the Webber 
 model described above. For example, w- could be the weight of pollutant 
 produced by the use of the raw material from location j for some typical 
 amount used (e.g., sulphur oxides from fuel oil). Solving the optimization 
 problem twice would present a choice between two suboptimal sites, and such 
 a choice could be made by some other technique. Firms are not required, 
 however, to minimize emissions, but to bring them within the SIP or NSPS 
 requirements, and the pollution weights w. could not be set until the firm 
 already had planned its emissions reduction strategy. 
 
 3.3.1 Improving the Decision Process by Extending Models and 
 by Linking Models with Other Techniques 
 
 The redefintion of the weights in the Webber model does not add any 
 terms to the model and presumably would not add to the complexity of its 
 solution. Such a substitution would not reflect the possible interaction 
 of pollution control costs and other production factor costs within the 
 location decision process. 
 
 An example of a model -which relates pollution abatement costs to other 
 production factors is in the reports by Comolli (1974) and by Werczberger 
 (1974). These models do not have distance components, however, so that it 
 is difficult to view them as location models. In order to extend these 
 models to incorporate a location component, the production functions would 
 have to be modified to contain the distance measures as cost factors. 
 
 As noted above, location models can be used to generate more than one 
 (nearly) optimal site and then other decision techniques are available. 
 A location choice game is described by Webber (1972, pp. 96-116) but more 
 subjective techniques which are available would include psychometric, as 
 well as Delphi techniques. 
 
 3.3.2 Applications of Models by State and Local Agencies to 
 Analyze Alternative Sites 
 
 The extension of the models mentioned above would be more appropriate 
 if better notions were available as to how they would fit into the decision 
 
D-51 
 
 process. Assuming that both private firms, as well as public agencies will 
 be involved, each type of entity will use the models from its own approach. 
 With regard to public agencies, a series of sites (in cities, industrial 
 parks, rural areas, etc.) would be compared to obtain a series of site 
 groups for different industries. The site list would then be available for 
 reference when a firm appeared seeking a location. The data for each site 
 would include factor costs, such as labor, power, and pollution control. 
 
 3.3.3 Applications of Models by Private Location Advisory Firms, 
 Railroads and Private Industrial Site Developers 
 
 A number of other users for location models exist, including advisors, 
 banks, railroads, and real estate developers. Each of these has a different 
 approach, but each one would use a location model to advise his clients 
 (firms who wish to relocate) on the advantages of alternative sites. Thus, 
 optimizing models would not actually be needed. 
 
 3.4 Interindustry Models in Location Decisions and Their Potential for 
 Incorporating Regulatory Requirements 
 
 The interindustry input-output model uses a series of coefficients to 
 distribute payments among pairs of sectors. For any sector, the value of 
 payments to each sector is calculated, and if such a matrix were defined 
 for each of a series of regions or states, then interregional (interstate) 
 advantages would become apparent. Although Isard has published a technique 
 for incorporating pollution control costs directly into the input-output 
 system, an alternative approach is to use the input-output coefficients to 
 generate pollution amounts, and then to apply a separate set of cost factors 
 to obtain control costs. A linked system such as that described could be 
 used to assess the potential impacts of a single new firm, and would be of 
 interest to the firm with respect to its pollution control costs and its 
 raw material costs. 
 
 3 . 5 Normative Approaches 
 
 In Section 1.0, above, we briefly touched upon why we should care about 
 the locational consequences discussed in Sections 2.0 and 3.0 of this paper. 
 
 W. Isard, "Activity- Indus trial Complex Analysis for Environmental 
 
 Management, " Papers of the Regional Science Association , Vol. 33, 1974, 
 pp. 127-140; J. H. Cumberland, "A Regional Interindustry Model for Analy- 
 sis of Development Objectives," Papers of the Regional Science Associ- 
 ation , Vol. 17, 1966, pp. 65-95; and W. H. Miernyk, "Some Regional Impacts 
 of the Rising Costs of Energy," The Regional Science Association Papers , 
 Vol. 37, 1976, pp. 213-227. 
 
D-52 
 
 We have described the logical reasons for believing there will be locational 
 conesequences (Section 2.0) and some empirical findings (Section 3.0) , recog- 
 nizing that the locational consequences of the Clean Air Act of 1977 will 
 require some time to unravel. And a number of commentators have begun to 
 examine the tradeoffs involved and the normative questions generally of the 
 economic-environmental balance at the urban and regional levels (Blair, 1973, 
 Davis, et. al, 1974; Forster, 1977, Kamien and Schwartz, 1977; and Walter, 
 1971) , particularly the dynamic, intertemporal aspects. 
 
 In Table 8, we return again to this question: Why should we care? 
 The Clean Air Act is portrayed in this Table as having three classes of 
 "economic" consequences: macrolevel effects on investment, prices, output, 
 foreign trade, and other national-level economic variables; designation of 
 areas and corresponding abatement strategies; and effects, both national 
 and regional, impacting on environmental quality, human health, property 
 values, and other more "benefit-oriented" variables. Through the macrolevel 
 consequences, a normative analysis would require an analysis of both the 
 resulting economic efficiency and equity results, at the national level. 
 The regional (locational) consequences are viewed as more complex, resulting, 
 as economic logic has it, from three sources at least: the overall macro 
 effects, the areal designation and regional-diverse abatement strategies, 
 and the "benefit" variables (which impact both on the regional labor force, 
 population, and migration patterns) . Picturing the regional decision to 
 locate/expend/migrate in a regional setting as the consequence of (at least) 
 these three forces, Table 8 next portrays the resultant effects on 
 regional output and employment, and the inputs to an analysis of economic 
 efficiency and equity at the regional level (as well as the interaction 
 between these regional effects and efficiency/equity results) . Nor does 
 this complete the normative analysis since the regional effects are seen to 
 exert a "feedback effect" on national employment and both together — national 
 and regional efficiency and equity effects — must be combined to provide 
 inputs to the policy analysis, which examines the resultant benefit-cost 
 issues, preferred sets of compensatory policies, and public sector budgetary 
 implications. In turn, of course, the policy analysis results become a 
 major input into evaluation and proposed revisions of the Clean Air Act. 
 
 This is an idealized version of a normative analysis. Were we to flesh 
 out the efficiency and equity issues further, we would need to delve into 
 the normative implications of the well-known Tiebout hypothesis, which views 
 the diversity of a nation's regions and jurisdictions as a positive contribution 
 to economic welfare, operating much as the market mechanism does in a competi- 
 tive private sector. Other subnational investigations of the efficiency- 
 equity effects of locational decisions would need to be reviewed, particularly 
 
 Charles M. Tiebout, "A Pure Theory of Local Expenditure," Journal of 
 Political Economy , October, 1956; Dennis Epple , Allan Zelenitz, and Michael 
 Visscher, "A Search for Testable Implications of the Tiebout Hypothesis," 
 June, 1978. 
 
D-53 
 
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D-54 
 
 where the location of public facilities is affected by environmental 
 regulations . 
 
 We mention these here primarily to indicate that the normative conse- 
 quences — the goodness and/or badness — of the various effects of the 
 Clean Air Act are, indeed, a complex matter. This is particularly so when 
 longer range, dynamic (time dependent) forces are at work: analysts, for 
 example, are beginning to view even the snowbe It- sunbelt movements, and 
 internal migration within these megaregions, as the products of trends 
 which evolve over many decades. These secular, structural, long-cycles, 
 undoubtedly have effects which need to be considered in discussing the 
 "value" to a region and/or the Nation of accelerating, reversing, or 
 advancing a specific locational trend already underway. No such normative 
 regional-national model exists today. 
 
 No attempt is made here to present an opinion of the direction these 
 might take; however, we believe it is important to begin to consider the 
 desirability of the Clean Air Act in these normative terms -- to help 
 identify the full costs and benefits, micro and macro, national and regional, 
 which attend this legislation. 
 
 The seminal article is that by M. B. Teitz, "Toward A Theory of Urban 
 Public Facility Location," Papers of the Regional Science Association , 1968; 
 see, also, David Bigman and Charles ReVelle, "The Theory of Welfare Consid- 
 erations in Public Facility Location Problems," Geographical Analysis , July, 
 1968. 
 
 See, for example, J. R. Meyer and R. A. Leone, "The New England States 
 and Their Economic Future: Some Implications of a Changing Industrial 
 Environment," American Economic Association Proceedings , May , 1978, pp. 110- 
 115. 
 
D-55 
 
 .0 PREDICTING THE IMPORTANCE OF FEDERAL REGULATIONS IN SPECIFIC 
 LOCATION DECISIONS 
 
 As a superficial level, the complexity of environmental regulations 
 could be a deterrent to a firm in deciding whether to move. The regulations, 
 however, are going to impinge on the firm whether it moves or not, and there 
 is no indication that air pollution regulations are going to be tougher for 
 stayers than for movers. The literature has increasingly turned attention 
 to the role of environmental legislation in the decisionmaking process of 
 industrial firms (Isard and Parcels, 1977; Kane, 1974) , frequently focus- 
 ing on specific industries, e.g., steel (Backman, 1978; Isard and Parcels, 
 1977; Temple, Barker, Sloane, 1977) ; power plants (Morgenstern, et al. , 
 1975); metal finishing (Ginn, Hill, and Blanchard, 1975); aluminum 
 (Gunterman, 1976; Isard and Parcels, 1977) ; petrochemicals (Isard and 
 Parcels, 1977); and electroplating (Office of Business Policy Analysis, 
 New York, 1978) . In this section, we turn our attention to these more 
 sectorally-signif icant consequences . 
 
 In addition, further discussion of the meaning and implications of the 
 EPA Class I, Class II, and Class III areas is presented. It is not possible 
 to assess the importance of this concept at present because revised state 
 plans which designate these areas have not been approved by EPA. Such 
 approval is scheduled for the summer of 1979. Meanwhile, based on the 
 definitions in the Clean Air Act of 1977, it is possible, but not entirely 
 safe, to assume that most attainment areas will be designated Class II, and 
 that some states will attempt to divide ACQR's into multiple classes. 
 
 Emphasis on Class II areas is provided by a report prepared for the 
 Federal Energy Administration (FEA, 1977) which analyzed the potential for 
 development of Class II areas by modeling the potential degradation of air 
 due to selected types of plants. In other words, techniques were used which 
 forecast the air quality degradation from assumed (standardized) plant 
 emissions within various metal producing, chemical, and other sectors. The 
 Class I, II, and III area definitions are intended to provide a way of 
 allowing development which maintains control over possible deterioration. 
 These class designations are defined on the basis of air quality so that 
 effects of development must be assessed by analyzing the emissions-quality 
 connections . 
 
 Therefore, existing air quality has now been joined by deterioration 
 increments as basic parameters in location decisions and permits review. In 
 order to consider specific plant designs proposed for specific sites, i.e., 
 in order to analyze examples of concrete location problems, the data on 
 existing air quality, as well as the model predictions of deterioration due 
 to the plant, must be considered. The remainder of this section presents a 
 review of issues and decisions faced by industry and state and local govern- 
 ments in using the air pollution parameters to arrive at sector-specific 
 decisions. Specific case examples of how this process has occurred among 
 firms and states are rare, but some insights are available from the EPA-DOL 
 newsletter (EPA-DOL, #19 in Appendix A) . 
 
D-56 
 
 4.1 Review and Prediction of the Role of Federal Regulations in 
 Location Decisions 
 
 The 1977 Clean Air Act is built around a structure of locational or 
 geographic concepts (AQCR's, attainment and non-attainment areas, and 
 meteorologic models, for example) and the implementation of the Act will 
 involve the application and use of these concepts to achieve improved 
 air quality. The topography and prevailing winds will be predominant 
 factors in determining how each region gets clean and stays clean. (Water 
 supply, rainfall, and mineral resources will also be important factors.) 
 The regions which contain high emissions industries will not necessarily 
 be faced with worse cleanup problems than other regions with cleaner 
 industries, but where there is an unfortunate combination of industries 
 and natural conditions, the Act will have a tendency to seem unfair. 
 
 4.2 Consideration of Specific Types of Industry 
 
 In addition to basic features of specific industrial processes, the 
 pollution control technology must be considered. For any given sector, 
 the impact of the Act will be felt in locational shifts, in pollution 
 control costs, or in the process technology itself. It would not be sur- 
 prising to see the impacts appear in all three categories, even within a 
 single company. In such cases, the actual total cost of achieving clean air 
 for a given company will be hard to assess, unless the company has a strong 
 incentive to analyze these costs internally. 
 
 4.2.1 The Industry List from the 1977 Clean Air Act 
 
 During preparation of the 1977 Clean Air Act, Congress was aware that 
 some industrial sectors would be impacted differently from others along one 
 or more of the three dimensions named in 4.2 above. A series of sector 
 analyses was prepared by EPA based on features in one or more congressional 
 committee versions of the proposed Act. These analyses retain some usefulness 
 in identifying industries about which Congress was concerned: 
 
 • Electric utility industry, 
 
 • Kraft pulp and paper mills, 
 
 • Oil refineries, 
 
 • Synthetic fuel facilities, and 
 
 • Copper smelters. 
 
 The reports of these studies have not been published and information about 
 them must be obtained by direct inquiry to EPA. Since the time period 
 
D-57 
 
 available was limited, the EPA analyses were simplified by a series of 
 assumptions, and the possibility of process change was not typically 
 investigated. In addition, the current definition of "Best Available 
 Control Technology" as used by EPA was assumed to hold for future years. 
 
 Finally, the types of locational shifts which were investigated were 
 of the order of 50 miles or less (among alternative sites). Thus, the most 
 important feature of the EPA analyses which remains is the approach and 
 method. The types of impacts assessed were on costs of fuel changes, costs 
 of meeting the NSPS, costs of installing BACT, and small distance locational 
 shifts, although the costs of such shifts were typically not calculated. 
 
 Analysis of locational shifts was hampered by lack of information on 
 location decision procedures. But a more severe problem in the impact 
 analyses was divergence among proposed legislation and the elusiveness of 
 concepts such as BACT and "beyond NSPS." Table 9 shows how the concept 
 of "allowable air quality increments" was approached and how the final 
 figures emerged. Similarly, divergent defintions of BACT were used (Tables 
 10 and 11) so that it is not surprising that divergent locational and 
 economic impacts were forecast by the EPA analyses. Further analysis would 
 now be possible, but since the Act has been in effect since August, 1977, it 
 is also time to develop empirical impact measures. 
 
 4.3 Review of Cost and Impact Data 
 
 Statistical approaches to regional growth and decline have used Bureau 
 of the Census data from the Census of Manufactures and County Business 
 Patterns to derive location quotients and similar indicators. Studies of 
 regional shifts in sector concentrations are thus able to analyze the implied 
 migrations of firms, or expansions/contractions, in considerable detail, 
 although there are numerous data gaps due to the Census rules for not dis- 
 closing individual firm payrolls and employment. Nevertheless, analyses 
 have been extended to the four-digit sector and to the county levels. 
 
 One area of effort into which this background work could be extended is 
 the relationship, if any, between air quality and industrial growth and 
 decline. Now that several years of data on emissions and air quality have 
 been compiled, the following hypotheses could be studied: 
 
 • Is new investment in some sectors attracted to cleaner or 
 dirtier air regions? 
 
 # Does productivity decline in regions with dirtier air (or 
 with cleaner air) where investment has been diverted to 
 pollution control? 
 
 Several analytical models have been proposed to analyze the impact of 
 diverted investment on employment, but little work has been done on investi- 
 gating statistical relationships in existing Census and EPA data bases. 
 
D-58 
 
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D-59 
 
 Table 10 -- Proposed BACT Definitions (House) 
 
 Best Available Control Technology (BACT) was assumed to be equivalent 
 to the following emission rates. (Note: The range indicates the use of 
 different grade coals -- FGD on medium- sulfur coal in the East and FGD 
 on low-sulfur coal in the West). 
 
 Coal- Fired Power Plant 
 
 Kraft Pulp and Paper Mills 
 (with on-site coal-fired 
 power generation) 
 
 Gasoline Refinery 
 
 Fuel Oil Refinery 
 
 Oil Shale Plant 
 
 Gasification Plant 
 
 Copper Smelter 
 
 0. 12-0.46 lbs/million Btu 
 0. 12-0.46 lbs/million Btu 
 
 0. 3% sulfur content 
 
 0. 3% sulfur content 
 
 Emissions from Colony EIS 
 include controls on major 
 emission sources. 
 
 0.2 lbs/million Btu on steam 
 plant only; 99% control of TSP 
 
 Stack emissions of 6.4 lbs/ton 
 of concentrate plus 1% of input 
 sulfur (captured fugitive emis- 
 sions); Uncaptured fugitive 
 emissions equal to 0. 5% of 
 Input sulfur. 
 
 Source : EPA Briefing on Impact of Significant Deterioration , 
 July 20, 1978, Attachment D, p. 22 (unpublished). 
 
D-60 
 
 Table 11 -- Proposed BACT Definitions (Senate) 
 
 Best Available Control Technology (BACT) = NSPS assumed the following emission 
 rates. (Note: The letter (A) indicates that no NSPS exists and that a practicable 
 fuel- sulfur content was assumed). 
 
 Coal- Fired Power Plant 
 
 Kraft Pulp and Paper Mills 
 (with on-site coal-fired 
 power generation) 
 
 (A) 
 (A) 
 (A) 
 
 (A) 
 
 1.2 lbs/million Btu 
 1.2 lbs/million Btu 
 
 0. 75% sulfur content (by weight) 
 
 0. 75% sulfur content (by weight) 
 
 Emissions from Colony EIS 
 include controls on major 
 emission sources. 
 
 1.2 lbs/million Btu on the 
 steam plant. Emissions from 
 gasification process are derived 
 from individual EIS. 
 
 Stack emissions of 6.4 lbs/ton 
 of concentrate plus 1% of input 
 sulfur (captured fugitive emis- 
 sions). Uncaptured fugitive 
 emissions equal to o. 5% of 
 input sulfur. 
 
 BACT = Control Beyond NSPS was assumed to be equivalent to the following 
 emission rates. (Note: The range indicates the use of different grade coals -- 
 FGD on medium- sulfur coal in the East and FGD on low- sulfur coal in the West). 
 
 Gasoline Refinery 
 Fuel Oil Refinery 
 Oil Shale Plant 
 
 Gasification Plant 
 Copper Smelter 
 
 Coal- Fired Power Plant 
 
 Kraft Pulp and Paper Mills 
 (with on-site coal-fired 
 power generation) 
 
 Gasoline Refinery 
 
 Fuel Oil Refinery 
 
 Oil Shale Plant 
 
 Gasification Plant 
 
 Copper Smelter 
 
 0. 12 - 0.46 lbs/million Btu 
 0. 12 - 0.46 lbs /million Btu 
 
 0. 3% sulfur content 
 
 0. 3% sulfur content 
 
 Not Applicable 
 
 0. 2 lbs/million Btu on steam plant 
 only; 99% control of TSP 
 
 Not Applicable 
 
 SOURCE: EPA Briefing on Impact of Significant Deterioration, July 20, 1978, 
 Attachment C, p. 19 (unpublished). 
 
D-61 
 
 The analyses suggested would be a useful preamble to analysis of regu- 
 latory impacts on corporate location decisions. The preliminary survey 
 development for inquiring into such impacts has been done both at EPA, the 
 Department of Labor (EPA Economic Dislocation Early Warning System, a 
 quarterly letter prepared by EPA and Labor Department regional offices) , 
 and also at the Department of Commerce. A summary of the Department of 
 Commerce-Bureau of Economic Analysis surveys appeared in the Survey of 
 Current Business for June, 1978 (Table 12). 
 
 Survey data on industry decisions is nevertheless likely to be difficult 
 to obtain in detail because of firms' understandable reluctance to disclose 
 planned expansions relocations prematurely. As noted by EPA in their analysis 
 of possible impacts on kraft pulp and paper mill locations: 
 
 The most ideal sites to analyze to determine 
 the impact of proposals to prevent significant 
 deterioration of air quality (NSD) are the ones 
 currently under consideration by the major 
 corporations in the pulp and paper industry. 
 However, future site planning is a closely 
 guarded secret and it has not been possible to 
 gather this information from individual firms 
 or the American Paper Institute (API) . An * 
 alternative approach which is used in this 
 report is to analyze historical data under 
 the hypothetical premise that NSD regulations 
 went into effect at the time the mills were 
 proposed for construction. Locational decisions 
 during this period actually ignored NSD consider- 
 ations and it is, therefore, possible to isolate 
 whatever impact NSD could have had in terms of 
 capacity precluded and additional pollution control 
 costs. 
 
 This reluctance and the resulting lack of data place even more importance on 
 a statistical analysis of regulatory impacts. One approach being investigated 
 is the measurement of SIP's along such dimensions as: 
 
 • Existing source emissions restrictions, 
 
 • Ambient air quality standards (relative to EPA) , 
 
 m Measurement of areas in Class I, II, and III designations, and 
 
 • Record of enforcement and litigation. 
 
 * 
 
 Environmental Protection Agency, Analysis of the Impact on the Kraft 
 
 Pulp and Paper Industry of Alternative Approaches to Significant Deterioration," 
 June 4, 1976 (unpublished) , p. 3. 
 
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D-63 
 
 Any of these or other measures must then be analyzed with respect to the two 
 other classes of data mentioned above: industrial investment and productivity 
 data, and air quality and emissions data. At present, there is no well- 
 developed theory to link the three data sets, but further analysis of a 
 controlled experiment type of design will be necessary before any one of the 
 classes can be ruled out of an air quality/regional growth theory. 
 
D-64 
 
 5.0 CONCLUDING REMARKS 
 
 We have covered a variety of subjects in this paper and, unfortunately , 
 have reached no definitive conclusions about the locational effects and 
 further downstream consequences of the clean air legislation, particularly 
 the Clean Air Act of 1977. 
 
 The literature we have reviewed is, indeed, sparse as it relates to 
 the specific question (s) of the treatment and control of the attendant 
 costs of air pollution standards on "industrial location" (or, even more 
 broadly, the geographical deployment of employment and output) . Why is the 
 empirical data and analysis so sparse? Perhaps too short a period has passed. 
 Perhaps the analytic problem is too complex and no one has been able to 
 formulate it very well. No one, for example, has yet thought of it as a 
 supply-demand problem, i.e., as a supply of industrial location land and 
 infrastructure (physical, economic, and social) versus a demand for indus- 
 trial locatable land (etc.). Simple multiple regressions just will not 
 handle this level of complexity. Similarly for data bases: Which make 
 the most sense? Many, many gaps in an "ideal" data system exist. 
 
 We believe this, inexorably perhaps, has led us to the following 
 conclusions : 
 
 • This is an ideal time to begin to monitor the impacts of 
 an important regulatory activity, i.e., the Clean Air Act 
 and its implementation. The logic of the Clean Air Act is 
 such that we can anticipate that it will most likely have 
 substantial locational effects -- but we may never get to 
 know these. We are not ready to measure, estimate, or 
 project these consequences; the analytic concepts have 
 not been fleshed out and the data bases are almost surely 
 inadequate. 
 
 • The work to date — by government agencies, academics, and 
 industry -- on the consequences (on industrial location) 
 of clean air and other environmental legislation is not 
 convincing; difficult to assemble; and probably not useful 
 for estimating the future consequences. 
 
 • If industrial location is_ affected, in a substantial way for 
 some sectors and in some places, as we expect it will, it 
 will have both microeconomic impacts (i.e., on economic 
 efficiency) and, possibly, macroeconomic effects (i.e., on 
 jobs and output) . Prices and costs would be affected in 
 either case. A preliminary framework for tracing these 
 micro- and macroeconomic impacts, as these might result 
 from regulation- induced changes in industrial location, is 
 developed in this paper. Implementation of this framework 
 is not, however, likely to be a simple research task. 
 
D-65 
 
 Even if the CAA has substantial locational consequences, 
 we do not and cannot conclude that benefits from the Act 
 do not exceed its costs; however, we do believe it would 
 be worthwhile to begin to measure these costs and, where 
 benefits would not be affected, find ways to mitigate 
 unintended locational misallocation effects. Nor can we 
 definitely assess with confidence alternative approaches, 
 e.g., increasing the use of air pollution rights markets. 
 Nevertheless, attention to matters discussed in this 
 paper will increase our ability to make such policy 
 decisions . 
 
D-67 
 
 APPENDIX: 
 
 Annotated Bibliography 
 
• 
 
D-69 
 
 Title: 
 Author(s): 
 
 Source Title: 
 Citation: 
 Year: 
 Subject: 
 
 Environ mental Improvement Through Economic Incentives 
 
 F. Anderson, A. Kneese, P. Reed, S. Taylor, 
 R. Stebenson 
 
 Resources for the Future, Washington, D. C. 
 
 1978 
 
 "Charge" strategies as a means for environmental 
 control; economic incentives 
 
 Abstract: 
 
 This book examines the "charge" concept as an alter- 
 native to past environmental control strategies that 
 can be used instead of or in conjunction with direct 
 regulation to control air and water pollution, noise, 
 congestion, and other activities that degrade the 
 environment. Environmental charges levied on 
 polluting activities provide an incentive to discon- 
 tinue or abate these activities by making the polluter 
 pay while at the same time providing a cost-effective 
 means of control. 
 
 The authors cite advantages of this strategy: 1) given a 
 legislatively determined level of environmental quality 
 as a goal, the average costs of controlling environmental 
 harms in various industries could be used to design a 
 charge that achieves a high level of efficiency; 2) charge 
 systems, are more cost effective than regulations; that 
 is, since each source decides how much to control on 
 the basis of its own control cost the sources with high 
 control costs will control less and the sources with 
 low control costs will control more, the net result 
 being that the average cost of control per unit of pollu- 
 tant would be lower than it would be under regulatory 
 strategies; and 3) the EPA and state agencies could 
 direct their administrative expertise to monitoring 
 technologies instead of production and pollution control 
 technologies. 
 
 This book analyzes the dynamics of implementing 
 charges, including the political, legal, and technical 
 problems involved. The theoretical basis of the charge 
 concept is outlined, and an extensive survey of existing 
 and proposed charge systems is presented. 
 
D-70 
 
 Title: 
 
 The Steel Industry: Problems and Solutions 
 
 Author (s): 
 
 Jules Backman 
 
 Source Title: 
 
 Challenge 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 July -August 
 
 1978 
 
 Recovery program for the steel industry 
 
 Abstract: 
 
 In the first part of this paper, Backman outlines 
 the problems facing the U. S. steel industry. 
 Included in his discussion are: lagging growth 
 rate, import competition, slower increases in 
 productivity, decline in employment, increases 
 in labor costs, political price pressures and 
 antipollution costs. It is pointed out that pollution 
 abatement costs are mandated investments which 
 do not yield additional output and contribute to a 
 slower rate of productivity. Backman offers 
 solutions in the form of: allowing industry more 
 freedom to solve its own problems, holding down 
 of steel labor costs, faster write-offs for anti- 
 pollution costs, additional incentives for modernization 
 and replacement of existing plants, the diversification 
 of steel industry to broaden its industrial base and 
 quicker enforcement of antidumping regulations on 
 foreign imports. 
 
D-71 
 
 Title: 
 
 Author (s): 
 
 The Urban Impact of Federal Policies: Their Direct 
 and Indirect Effects on the Local Public Sector 
 
 Stephen M. Barro 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Small Cities in Transition; The Dynamics of Growth 
 and Decline 
 
 Ballinger Publishing Co. , Cambridge, Ma. 
 
 1977 
 
 Impact of regulations on urban areas 
 
 Abstract: 
 
 This chapter examines the effect of federal policies 
 on urban areas using a three -sector system. The 
 interacting sectors are 1) the private business sector, 
 2) the residential, or household sector, and 3) the 
 urban public sector. Two general points about 
 federal policy formation emerge. They are: the 
 potential importance of indirect federal policies -- 
 those that operate via linkages among the different 
 sectors within the urban system -- and the finding that 
 locational incentives ought to be central elements in 
 the development of a comprehensive urban policy. 
 
D-72 
 
 Title: 
 
 Author: 
 
 Source Title: 
 
 Citation: 
 Year: 
 Subject: 
 Abstract: 
 
 Statement Prepared for the U. S. House of 
 Representatives Select Committee on Population 
 
 David Birch 
 
 Hearings, June 6, 1978 
 
 1978 
 
 Factors affecting industrial location 
 
 Birch explores the "underlying causes" of the 
 recent regional, urban and rural, metropolitan- 
 non-metropolitan employment and population 
 shifts; the "main course of net change is the 
 differential rate at which constant (and high) losses 
 are replaced". He forecasts that these causes are 
 structural and relatively permanent so that public 
 sector actions to reverse the decline of the North- 
 east and Midwest are likely to be ineffective; rather, 
 Birch suggests that declining areas better manage 
 their conditions of negative growth. Picturing the 
 "entrepreneur" as the key, somewhat footloose* factor 
 in locational decisions, Birch believes the factors 
 which have caused their southward and western move- 
 ments will continue for the indefinite future. Prepared 
 in a journalistic style for the Hearings, Birch only 
 briefly cites the data bases used to reach these find- 
 ings, including a file of 5. 6 million business estab- 
 lishments describing, for each, its characteristics 
 and status in 1969, 1972, 1974, and 1976, as well as 
 a file of 1. 5 million members of the workforce over 
 an 11-year period, including location of each job. As 
 to firm migration, Birch finds that the physical mi- 
 gration of firms from one state or area to another 
 is relatively insignificant as a cause of change. "Al- 
 though highly and widely reported in the press when 
 they occur, the net effect of such migrations rarely 
 exceeds a tenth of a percent of the job base in any 
 particular place in any year. " There is little further 
 analysis of this finding, except to conclude that "in- 
 dependent entrepreneurs" (as opposed to headquarters, 
 subsidiaries and branches) create almost 75% of al] 
 the job replacement ("births") due to both the creation 
 of new establishments and/ or the expansion of existing 
 establishments. 
 
D-73 
 
 Title: 
 
 Authors): 
 
 Problems of Pollution Standards: The Clean Air 
 Act of 1970 
 
 Roger D. Blair 
 
 Source Title: 
 
 Land Economics 
 
 Citation: 
 Year: 
 Subject: 
 Abstract: 
 
 August, 1973, p. 260 
 
 1973 
 
 Critique of the Clean Air Act of 1970 
 
 The author advocates the use of taxation instead of 
 regulation to achieve desired air quality. The 
 government could levy a uniform per unit tax on all 
 firms in an air basin, revising the tax in an iterative 
 fashion so as to achieve ambient air quality standards, 
 It is argued that a tax scheme will lead to a better 
 allocation of resources among industries than rigid 
 emissions regulations. 
 
 The Clean Air Act of 1970 is also criticized for 
 containing an ambiguous policy with respect to new 
 sources of pollutants and not defining a policy for 
 existing sources. The enforcement process for the 
 Act is analyzed with regard to the expected behavior 
 of the EPA Administrator, industrial groups and 
 local governments. Finally, some methods for 
 analyzing the tradeoff between air quality and the 
 consumption of other goods are mentioned, but 
 all of these have weaknesses. 
 
D-74 
 
 Title: 
 
 Author(s): 
 Source Title: 
 Citation: 
 Year: 
 Subject: 
 
 Regional Residual-Environmental Quality 
 Management Modeling 
 
 Blair T. Bower, Editor 
 
 Resources for the Future, Washington, D. C, 
 
 1978 
 
 Environment management modeling 
 
 Abstract: 
 
 This research report provides an overview of regional 
 residuals -environmental quality management and of 
 the analysis necessary to generate information for de- 
 cisions on such management. This volume helps to 
 provide background for, and insights on, the analytical 
 problems faced in developing useful information for 
 societal decisions on residuals -environmental quality 
 management. 
 
 3 
 
D-75 
 
 Title: 
 
 Author(s): 
 
 Pollution Abatement Costs and Expenditures, 
 1976-MA-200 (76)-2 
 
 Bureau of the Census 
 
 Source Title: 
 Citation: 
 Year: 
 Subject: 
 
 Current Industrial Report 
 
 U. S. Government Printing Office, Washington D. C, 
 
 1977 
 
 Pollution abatement costs 
 
 Abstract: 
 
 This is the annual report on 1976 pollution 
 abatement control capital expenditures and 
 operating costs for the U. S. by SIC 4 digit 
 industry and for the States and SMSA's by 
 SIC 2 digit industry. Data are from the 
 Pollution Abatement Costs and Expenditures 
 (PACE) survey of 19,000 manufacturing 
 establishments selected as a subs ample from 
 the 70,000 establishments in the 1973 Annual 
 Survey of Manufactures (ASM) sample. 
 
 Tables include: pollution abatement capital 
 expenditures and operating costs by (1) form 
 of abatement and major industry group, 
 (2) form of abatement and state, and (3) 
 employment size class of establishment 
 and major industry group. Other tables 
 include quantities of pollutants removed and 
 related statistics and pollution abatement 
 costs and related statistics. 
 
D-76 
 
 Title: 
 
 Author(s): 
 Source Title: 
 Citation: 
 
 Year: 
 Subject: 
 
 Macroeconomic and Industry Impacts of Water Pollution 
 Abatement Legislation 
 
 R. Chao, N. G. Dossani; CONSAD Research Corporation 
 
 Paper presented at the Western Economic Association 
 1976 Conference 
 
 1976 
 
 Impact of water pollution abatement legislation 
 
 Abstract: 
 
 This paper summarizes the principal results of a study of 
 the impacts of PL 92-500, the Federal Water Pollution 
 Control Act Amendments of 1972. The study focused on 
 analyzing the impacts on major economic indicators as 
 well as on prices, investments and other variables at the 
 industry level. The results are summarized as follows: 
 
 Under the assumption of a control baseline and adherence 
 to compliance schedules the results indicate that 
 abatement expenditures do serve as a stimulus to the 
 economy initially; about midway through the forecast 
 period real GNP dips below baseline and by 1985 is 
 3 percent below baseline. 
 
 The impact on inflation is not insignificant in the same 
 scenario. The inflation rate is about . 9 percent higher 
 due to the abatement expenditures. 
 
 The incremental impact of BAT (1983) expenditures are 
 milder than the impacts of BPT (1977) standards. Results 
 reported elsewhere (4) indicate that BAT standards 
 involve significant additional removal of major pollutant 
 categories. While a comprehensive benefit-cost assess- 
 ment must await further analysis, the economic impact 
 results obtained here could provide useful inputs to this 
 analysis. 
 
D-77 
 
 Title: 
 
 Author(s): 
 
 The Macroeconomic Impacts of Federal Pollution 
 Control Programs 
 
 Chase Econometric Associates, Inc. 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 The Status of Environmental Economics: A Report 
 Prepared for the Committee on Public Works, 
 U. S. Senate 
 
 June, 1975 
 
 Economic impacts of environmental regulations 
 
 Abstract: 
 
 This anlysis is based upon CEQ/EPA estimates of 
 incremental abatement costs associated with current 
 federal air and water pollution control legislation . 
 The analysis used the Chase Econometrics macro- 
 economic and input/output models which were linked 
 together into a single solution algorithm. The 
 system allows analysis of both the impacts that 
 different industries have on one another and on the 
 interaction between pollution control expenditures 
 and general economic factors. The cost estimated 
 for abatement are based on the 1974 edition of 
 The Cost of Clean Air and the 1973 edition of 
 The Economics of Clean Water. The study concludes 
 that pollution control expenditures for 1973 to 1982 
 will have a noticeable but modest effect on the over- 
 all economy in terms of higher prices, unemployment 
 and lower growth rate of the GNP, but goes on to 
 state that by 1982 the differences gradually diminish 
 and growth and employment will be at virtually the 
 same levels which would occur in the absence of 
 pollution control investment. 
 
D-78 
 
 Abstract Under a "low growth" baseline the impacts are compar- 
 
 (continued): able to the control baseline if a compliance schedule and 
 
 a "low" municipal spending scenario is assumed. How- 
 ever, higher levels of spending result in stimulative 
 effects that keep GNP above baseline till near the end of 
 the forecast period. 
 
 The stimulative effects of abatement spending are 
 stronger and inflationary impacts milder if in-process 
 (as opposed to end-of-pipe) technologies are used to 
 comply. 
 
D-79 
 
 Title: 
 
 The Economics of Environmental Policy- 
 
 Author (s): 
 
 S. V. Ciriacy-Wantrup 
 
 Source Title: 
 
 Land Economics 
 
 Citation: 
 
 February, 1971, p. 36 
 
 Year: 
 Subject: 
 
 Abstract: 
 
 1971 
 
 Welfare economics, benefit-cost analysis, and the 
 ocean environment 
 
 Systems of thought for assessing alternative 
 environmental policies are described. These include 
 the Pareto criterion, welfare economics and benefit- 
 cost analysis. The weaknesses of these systems 
 are pointed out. 
 
 The Pareto criterion is often irrelevant since there 
 are scarcely any policies (environmental or otherwise) 
 which affect no one negatively. Benefit-cost analysis 
 uses national income as a proxy for social welfare-- 
 a scientific fiction which may become mere dogma 
 if one is unwary. 
 
 A three-level hierarchy of decision systems is 
 described. Finally, implication of economic analysis 
 for the ocean environment are presented. The need 
 to distinguish between common resources and 
 "fugitive" resources is stressed in this discussion. 
 
D-80 
 
 Title: 
 
 The Distributive Effects of Public Law 92-500 
 
 Author(s): 
 
 Robert A. Collins 
 
 Source Title: 
 
 Journal of Environmental Economics and Management 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 4, Number 4, pp. 345-354 
 
 1977 
 
 Distribution impact of Clean Water Act 
 
 Abstract: 
 
 Title II of the 1972 "Clean Water Act" provided for a 
 potentially massive federal construction grant program 
 for the construction of publicly-owned wastewater 
 treatment plants. Part of this subsidy accrues to 
 municipalities and the remainder to industry. The 
 regulations for these federal grants are somewhat 
 perplexing and it is not obvious who will benefit and 
 by how much. The objective of this article is to 
 quantify the subsidies received by municipalities and 
 industry and estimate the effect on the distribution 
 of income under certain assumptions. It is concluded 
 that these federal construction grants are likely to 
 redistribute income from the middle -income classes 
 to primarily the very rich. 
 
D-81 
 
 Title: 
 
 Pollution Control in a Simplified General-Equilibrium 
 Model with Production Externalities 
 
 Author<s): 
 
 Paul M. Comolli 
 
 Source Title: 
 
 Papers of the Regional Science Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 23 
 
 1974 
 
 Pollution Abatement as a factor in production model 
 
 Abstract: 
 
 Pollution externalities of the producer -producer type are 
 considered in a positive two sector model with stationary- 
 capital and labor. By assumption, output from the 
 polluting sector can be. diverted to pollution abatement. 
 Environmental authorities attempt to control the level of 
 pollution to some minimum "acceptable" standard by 
 requiring polluters to depollute through the mechanism of 
 a uniform tax on production. 
 
 The analysis emphasizes the conditions (concerned with 
 environmental responsiveness to industrial pollution) in 
 which environmental authorities, acting on behalf of the 
 society, can effectively administer a pollution tax on 
 physical (industrial) output so as to control pollution. The 
 tax was levied uniformly on all polluters without a priori 
 knowledge of industrial firms 1 marginal costs or consumers' 
 and agricultural firms' marginal damages -- information 
 which is essential to the practical application of the usual 
 Pigouvian tax-subsidy proposals. 
 
 In the formulation used,/* designates the fraction of indus- 
 trial output assigned to abatement efforts, which for 
 convenience is subject to constant returns. As measured 
 in terms of industrial output, the expenditure of one unit 
 of industrial output "depollutes"5 units. The dynamic 
 relation follows: 
 
 J*- ic-fid)Mk t ) 
 
 k t - k 
 
 «(/'), 
 
 h - k x 
 
 where c = 7L, d = 5L, L is the amount of Labor, P is 
 Pollution, and K is the capital-labor ratio. 
 
D-82 
 
 Title: 
 
 Pollution Control in a Simplified General-Equilibrium 
 Model with Production Externalities 
 
 Author (s): 
 
 Paul M. Comolli 
 
 Source Title: 
 
 Journal of Environmental Economics and Management 
 
 Citation: 
 
 Volume 4, Number 4, pp. 289-304 
 
 Year: 
 Subject: 
 
 1977 
 
 Effects of tax incentive for pollution control 
 
 Abstract: 
 
 Pollution externalities of the producer-producer type 
 are considered in a positive two- sector model with 
 stationary capital and labor. By assumption, output 
 from the polluting sector can be div*erted to pollution 
 abatement. Environmental authorities attempt to 
 control the level of pollution to some minimum 
 "acceptable" standard by requiring polluters to 
 depollute through the mechanism of a uniform tax 
 on production. Following discussion of short run 
 considerations, the stability of the tax-adjustment 
 scheme is examined and the dynamic nature of 
 growth paths in the economy is explored. 
 
D-83 
 
 Title: 
 
 The Economic Impact of Environmental Programs 
 
 Author (s): 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subiect: 
 
 Council on Environmental Quality, Executive Office 
 of the President 
 
 The Status of Environmental Economics: A Report 
 Prepared for the Committee on Public Works, 
 U. S. Senate 
 
 June, 1975 
 
 Impact of environmental programs 
 
 Abstract: 
 
 This memorandum summarizes the Council on 
 Environmental Quality's 1974 estimates and 
 analyses of economic abatement costs and impacts 
 of current Federal environmental legislation. The 
 four types of costs discussed are: investment costs, 
 capital costs, O and M costs, and annual costs. These 
 abatement costs are estimated primarily from data 
 provided by the EPA and other Federal agencies. 
 The macroeconomic impacts outlined are on inflation, 
 investment, productivity, and economic growth, 
 employment, government finances, foreign trade, 
 and distribution of income. This analysis indicated 
 that there was unlikely to be any significant macro- 
 economic impacts from environmental programs. 
 However, the impacts are not spread evenly across 
 all sectors, and the report goes on to show how 
 they affect specific industries. 
 
D-84 
 
 Title: 
 Author (s): 
 
 The Economic Impact of Environmental Programs 
 
 Council on Environmental Quality 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Hearings before the Joint Economic Committee, 
 Congress of the United States 
 
 November 22, 1974 
 
 1974 
 
 Costs of environmental control 
 
 Abstract: 
 
 This paper discusses economic impacts of environ- 
 mental controls. Includes tables describing: estimated 
 incremental pollution expenditures 1974-1982' 
 investment for control by industries; projected 
 U. S. economic growth (with and without abatement 
 expenditures) 1974-1982 ; projected unemployment 
 rates with and without controls 1974-1982 ; and plant 
 closings between 1971 and 1974 where pollution control 
 costs were alleged to be a factor. (There was a total 
 of 68 such plants with 12, 342 employees being affected. 
 Most closings were in the paper products and primary 
 metal fields. ) 
 
 The data indicate that regulations will have a minimal 
 negative effect on the rate of increase in labor pro- 
 ductivity and the rate of economic growth for the Nation. 
 The pollution control expenditures will place increased 
 demands on the capital market and will displace some 
 private investments, but analyses conclude that the 
 displacement will predominantly be in areas other than 
 plant and equipment expenditures, such as residential 
 construction. 
 
D-85 
 
 Title: 
 
 Author (s): 
 
 Development of an Economic Environmental Trade -Off 
 Model for Industrial Land- Use Planning 
 
 R. M. Davis, G. S. Stacey, G. I. Nehman, F. K. Goodman 
 
 Source Title: 
 
 The Review of Regional Studies 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 4, Number 1, pp. 11-26 
 
 1974 
 
 Model for industrial location 
 
 Abstract: 
 
 The authors discuss research that is currently in progress 
 to develop a land -use model that will help planners address 
 the tradeoff between environmental quality and economic 
 development. Using the Laurent-Hite Input-Output Model 
 which consists of a Regional Analysis Submodel and a 
 Site Analysis Submodel, the case study centers on 
 Charleston, South Carolina. The model is used to 
 evaluate the social, economic and environmental impact 
 of alternative land-use plans, with greatest emphasis of 
 the environmental-related choices on the location of industry. 
 The project is a simple generic approach to developing 
 a regional model that can be used by local and state planners 
 in formulating selective industrial-development programs. 
 Data used in the project included the industrial land-use 
 requirements compiled by the Bureau of Public Roads 
 in July, 1970, and the regional economic data produced 
 by the "Water Resources Research Institute at Clemson 
 University. 
 
D-86 
 
 Title: 
 
 Dynamic Aspects of Air Quality Control Costs 
 
 Author(s): 
 
 W. Dolde, D. Epple, M. Harris, L. Lave, and S. Leinhardt 
 
 Source Title: 
 
 Journal of Environment Economics and Management 
 
 Citation: 
 
 Year; 
 
 Subject: 
 
 Volume 4, Number 4, pp. 313-334 
 
 1977 
 
 Costs of environmental regulations 
 
 Abstract: 
 
 This paper investigates aggregate cost differentials 
 due to implementing environmental regulations over 
 alternative time periods. These differentials may 
 be related to premature obsolescence of the capital 
 stock, technical advances in abatement, and perhaps 
 other factors. Estimates, which are subject to a 
 number ( of qualifications, indicate that these differ- 
 entials may be substantial. Investigation is conducted 
 within a simple but complete general equilibrium 
 model and contrast the approach with more conven- 
 tional techniques of forecasting and policy assessment 
 The model consists of a description of preferences, 
 technology, and the interaction of economic agents 
 which generates forecasts of economic variables for 
 alternative scenarios. 
 
D-87 
 
 Title: 
 
 Author(s): 
 
 Implementing the Clean Air Act: A Case 
 Study of Oxidant Control in Los Angeles 
 
 Paul B. Downing, Gordon Brady 
 
 Source Title: 
 
 Natural Resources Journal 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Volume 18, Number 2 
 
 April, 1978 
 
 Problems and alternatives concerning the 
 Clean Air Act 
 
 In this paper, the authors document federal 
 failures in the control area, explaining what 
 has happened since the passage of the 1970 
 Clean Air Act, emphasizing the control of 
 photochemical oxidant (smog) in Los Angeles. 
 Although the case study is employed primarily 
 to provide substance to their review of the 
 implementation of the Act, Downing and Brady 
 feel that the failure of the Act to control oxidants 
 is indicative of a general problem endemic in 
 the philosophy of the Act. Los Angeles was 
 chosen for the case study because of the 
 unique role it has played in the passage of the 
 act and in its implementation by EPA. The 
 paper analyzes the effects one might expect 
 from the proposed amendments currently 
 under consideration in Congress. The authors 
 suggest some of the issues which a new law 
 would have to address if it is to be fully 
 effective. Downing and Brady conclude from 
 this analysis that the proposed amendents are 
 only marginally better at solving the basic 
 issues raised by their analysis, and offer 
 alternative philosophies that they feel should 
 be considered by Congress. 
 
D-88 
 
 Title: A Critical Review of Regulations for the Control of 
 
 Sulfur Oxide Emissions 
 
 Author(s): R. B. Engdahl (Battelle Columbus Laboratories) 
 
 Source Title: Journal of the Air Pollution Control Association 
 
 Citation: May 1973, Volume 23, Number 5, p. 364 
 
 Year: 1973 
 
 Subject: Properties of sulfur oxide and regulations affecting 
 
 their emission 
 
 Abstract: Sources of sulfur oxide pollution are listed and its 
 
 biochemical effects are noted. A brief history of 
 health episodes (e.g. , Donora, PA in 1948) and the 
 development of pollution control technologies for 
 sulfur oxides is given. Current control methods 
 are assessed both from the standpoint of technical 
 viability and commercial availability. 
 
 State and local regulations affecting SO x emissions 
 are presented for 23 states and the District of Columbia. * 
 Most of these regulations specify the maximum allow- 
 able sulfur contents of coal and fuel oil. Due to a shortage 
 of low sulfur coal, however, the possibility exists that 
 population and industrial growth will be constrained in 
 some areas. 
 
 *The author's source of this list of regulations is an 
 article by R. I. Duprey in Chemical Engineering Progr. 
 magazine 68(2): 70 (1972). 
 
D-89 
 
 Title: 
 
 Author(s): 
 
 Source Title: 
 
 Compilation of Air Pollutant Emission 
 Factors (Second Edition) 
 
 Office of Air and Waste Management Research 
 Triangle Park, North Carolina 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Environmental Protection Agency 
 August, 1977 
 Air pollution emission factors 
 
 Abstract: 
 
 This is a compilation of data on the quantity 
 and characteristics of air pollution emissions 
 from individual type of sources including 
 vehicles and industrial processes. For 
 each process, the quantity of each pollutant 
 is related to an indicator such as produc- 
 tion, fuel consumption or miles traveled. 
 Data are based on latest available published 
 tests and measurements. Included are 
 descriptions of emissions, available 
 controls, factors affecting emission levels 
 and tables showing quantity of each type 
 of emission per indicator unit of the process. 
 
D-90 
 
 Title: 
 
 Author(s): 
 
 EPA Economic Dislocation Early Warning 
 System Quarterly Summary Report 
 
 Environmental Protection Agency 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 American Statistics Index 1977, 4th Annual 
 Supplement 
 
 Congressional Information Service, Washington 
 
 D. C. 
 
 1978 
 
 Pollution controls and job losses 
 
 Abstract: 
 
 The article reports on job losses resulting 
 from plant closings or partial shutdowns 
 which have been attributed in part to pollution 
 control costs. Prepared, pursuant to an EPA - 
 Labof Department agreement based on data 
 compiled at EPA regional offices, it is 
 issued 3 months after the end of each quarter. 
 Included are charts listing actual and 
 threatened closures or curtailments resulting 
 in employment losses for the current quarter 
 and names and locations of plants, number 
 of jobs affected, characteristics of the plant, 
 control problems and disposition of displaced 
 workers. 
 
D-91 
 
 Title: 
 
 Author(s): 
 
 1973 National- Emissions Report, National 
 Emissions Data System (NEDS) of the 
 Aerometric and Emissions Reporting System 
 Environmental Protection Agency 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 Subject: 
 
 American Statistics Index. 1977, 4th Annual 
 Supplement 
 
 Congressional Information Service, 
 Washington, D. C. 
 
 1978 
 
 Air emissions 
 
 Abstract: 
 
 Second annual report on emissions of 
 particulates by detailed source. Data is 
 included for each state and each of the 
 247 Air Quality Control Regions. Data 
 is from the NFDS file and contains point 
 source estimates compiled primarily from 
 reports of state pollution control agencies, 
 and area source estimates. Detailed sources 
 are fuel combustion, industricil process, 
 solid waste disposal, transportation, and 
 miscellaneous area sources. 
 
D-92 
 
 Title: Impact of the EPA Class II Significant Deterioration 
 
 Regulations on Multiple Industries: Size and Siting 
 Limitations 
 
 Author(s): Environmental Research and Technology, Inc. 
 
 Source Title: Prepared for Environmental Policy Office, 
 
 Federal Energy Administration, Washington, D. C. 
 
 Citation: Unpublished report 
 
 Year: September, 1977 
 
 Subject: EPA regulations and plant locations 
 
 Abstract: This report provides an analyses of 
 
 multiple industry siting possibilities 
 under a set of very specific assumptions 
 which are: 1) plant design, 2) emission 
 control requirements, 3) model uncertainty, 
 4) rough terrain, and 5) EPA Class II 
 increments. . The main objectives in this 
 analyses were to determine the size and 
 spatial limitations imposed by the 3- and 
 24-hour significant deterioration increments 
 upon various major industrial facilities; 
 and the effects of assumed dispersion 
 modeling uncertainties upon these plant 
 sizes and spatial co-location restrictions. 
 Concentrations were estimated from 
 dispersion modeling calculations using the 
 EPA Gaussian plume methodology (and 
 specifically, the EPA PTMTPW computer 
 model). 
 
 The study, in all cases, assumes that the 
 facility or pair of facilities use all the 
 allowable increment. 
 
D-93 
 
 Title: 
 
 Author(s): 
 
 A Critical Review of Regulations for the Control of 
 Hydrocarbon Emissions from Stationary Sources 
 
 Milton Feldstein 
 
 Source Title: 
 
 Journal of the Air Pollution Control Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 May 1974, Volume 24, Number 5, p. 469 
 
 1974 
 
 Properties of organic compounds emitted into the air 
 and regulations affecting them 
 
 Organic compounds (including hydrocarbons) are classi- 
 fied by type, their sources listed, biochemical effects 
 noted, and rates of disappearance and compound 
 formation reviewed. Relevant ambient air quality and 
 emissions standards are also reviewed. The article 
 includes the results of a survey made of approximately 
 39 air pollution control agencies across the country to 
 determine the extent of local regulatory controls on 
 organic compound emissions. These agencies cover 
 areas in 13 states. Various control strategies 
 
 for meeting oxidant standards are assessed. 
 
D-94 
 
 Title: 
 
 Author (s) : 
 Source Title: 
 Citation: 
 Year: 
 Subject: 
 
 Abstracts : 
 
 Pollution Control in a Two-Sector Dynamic General 
 Equilibrium Model 
 
 Bruce A. Forster 
 
 Journal of Environmental Economics and Management 
 
 Volume 4, Number 4, pp. 305-312 
 
 1977 
 
 Optimal combination of industries producing 
 different pollutants 
 
 This paper examines the problem of pollution 
 control in an economy which produces two commodities 
 which have different polluting characteristics . The 
 model sheds light on the change in the optimal 
 combination of commodities such as public transpor- 
 tation as opposed to private transportation, detergents 
 and soap, and returnable and nonreturnable bottles. 
 
 
D-95 
 
 Title: 
 
 Author(s): 
 
 The Impact of the Federal Water Pollution 
 Control Actof 1972 
 
 Peter Fortune 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Unpublished report, Data Resources, Inc. 
 
 Water pollution regulatory impacts on local 
 governments 
 
 The ultimate goal of this study is to estimate 
 the impact of the Federal Water Pollution 
 Control Act of 1972 upon the level of interest 
 rates in order to determine whether the 
 capital spending by corporations and "munici- 
 palities" mandated by the act over the next 
 ten years can be realized without major 
 financial dislocations. In addition, the study 
 examines some reforms in financial policies 
 affecting the municipal bond market which 
 might mitigate the financial impact of the act. 
 
 In order to investigate adequately the problems 
 posed by the act, a thorough understanding 
 of the operation of the municipal bond markets 
 is necessary. Part I is devoted to a broad 
 overview of the structure of municipal bond 
 markets. 
 
 Part II focuses on an extensive review of the 
 literature bearing on the costs of borrowing 
 for municipalities. This part of the study 
 considers non-interest rate costs arising 
 from the preparation, underwriting and 
 distribution of municipal bonds. 
 
D-96 
 
 Abstract: Part III examines some factors external to 
 
 (cont. ) a borrowing municipality which affect its 
 
 cost of borrowing. The chief factors 
 discussed are the credit rating and state 
 constitutional and statutory restrictions 
 on municipal borrowing. 
 
 
D-97 
 
 Title: 
 
 How the Clear Air Law Can Choke Industry- 
 
 Author (s): 
 
 George Fowler 
 
 Source Title: 
 
 Nation's Business 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 66, Number 7, pages 29-36 
 
 1978 
 
 Effect of clean air regulations on business 
 
 Abstract: 
 
 The article describes the Clean Air Act Amendments of 
 1977 (the state plan, penalities, etc. ) and their impact 
 on businesses. The author maintains that the timetables 
 in the act are unreasonable and too costly, noting that 
 monies spent on abatement could be better spent on health 
 care and research programs. The main thrust of the 
 article is the problems involving EPA's attitudes towards 
 natural pollution in that EPA does not fully take into 
 account the amount of pollution in an area that is not 
 industry-related but comes from natural sources. 
 
D-98 
 
 Title: 
 
 Plant Closures and the Regional Consequences of 
 Water Pollution Control 
 
 Author (s): 
 
 James Freund 
 
 Source Title: 
 
 Citation; 
 
 Unpublished report 
 
 Year: 
 Subject: 
 
 Abstract: 
 
 1975 
 
 Industrial and regional impacts of water pollution 
 regulations 
 
 This report addresses both the industrywide and 
 the regional aspects of plant closures. The circum- 
 stances in which plants may or may not cease opera- 
 tions as a reaction to abatement costs, plant closings 
 of the past, and types of units which have, or are 
 likely to shut down, as well as the geographic 
 dimensions of closings are discussed. 
 
 The author points out that job losses resulting from 
 pollution controls cannot be equated with plant closures. 
 It is possible that controls, when compared to other 
 stresses influencing job prospects, may be only a 
 minor concern. The disproportionate impact on 
 small, single-location establishments implies that 
 measuring the impact of pollution controls by the 
 proportion of plants in designated industries that 
 may close is likely to overstate the number of jobs 
 involved. 
 
 In terms of region, the northeast will be susceptible 
 to the heaviest impact. While the south has the largest 
 number of jobs potentially impacted by pollution concerns, 
 the south has the best prospects for handling the problem. 
 
 The author concludes that while it may be in the national 
 interest to impose uniform pollution standards across 
 regions, consideration should be given to alleviating 
 the uneven resultant distress. 
 
D-99 
 
 Title: 
 
 Author (s): 
 
 The Economic Impact of the Federal Water 
 Pollution Control Act Amendments of 1972 
 on the Metal Finishing Industry 
 J. R. Ginn, A. Hill, E. V. Blanchard, Jr. 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 National Bureau of Economic Research, Inc. , for 
 the National Commission on Water Quality- 
 Unpublished report 
 1975 
 Economic impact of environmental regulations 
 
 Abstract: 
 
 This study is an analysis of the economic impact of 
 the 1972 Amendments to the Federal Water Pollution 
 Control Act on the metal finishing industry. The 
 report includes a discussion of the economic, 
 technological, and institutional environment within 
 which the metal finishing industry operates, a 
 discussion of the estimates of water pollution 
 abatement costs to be incurred by the industry, and 
 a discussion of the economic impacts that are likely 
 to derive from the imposition of such costs. The 
 study finds that the small shops will be eliminated 
 and the industry will go through a period of turmoil 
 involving numerous plant closings and the formation 
 of newer, more efficient plants. The fully depreciated 
 shops which are remaining competitive only because 
 of the lack of a need to recover capital will close. 
 Their capital requirements for pollution abatement 
 equipment will be several times their original 
 investment in production equipment and most of 
 them are unprepared for such expenditures. 
 
D-100 
 
 Title: 
 
 Criteria for Power Plant Siting in Pennsylvania 
 
 Author (s): 
 
 The Governor's Science Advisory Committee 
 
 Source Title: 
 
 Panel on Criteria for Power Plant Siting 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Executive Summary Report for Governor Milton J. Shapp 
 
 1976 
 
 Power plant location 
 
 Abstract: 
 
 The purpose of this report is "to initiate exploration 
 of basic technological considerations related to 
 power plant siting, and to identify some issues which 
 they raise. " The key issues considered in power 
 plant siting were land, water, transportation, health, 
 safety, environment, and proximity to fuel supply and 
 markets. In a series of questions designed to help 
 determine appropriate sites, the possible effects of 
 the clean air act amendments and other federal 
 regulations are considered. No conclusions or 
 answers are drawn; the report provides a starting 
 point for making location decisions for industry and 
 government. 
 
D-101 
 
 Title: 
 
 Author(s): 
 
 Source Title: 
 
 The Distributional Implications of National 
 Air Pollution Damage Estimates 
 
 Leonard P. Granessi, Henry M. Peskin„ 
 Edward Wolff 
 
 Resources for the Future 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Reprint 150 
 
 1977 
 
 Implications of air pollution damages 
 
 Abstract: 
 
 Through the use of data from the 1970 U. S. Popu- 
 lation Census, this paper attempts to estimate 
 the impact of national air pollution damages on 
 different segments of the population. By dis- 
 cussing the distributional implications of a set of 
 data that reflects the current state of knowledge, 
 the authors demonstrate the advantages of what 
 appears to be a promising direction for future 
 research; the development and refinement of both 
 aggregate and disaggregate economic measures as 
 complements to one another. In this analysis of the 
 distributional implications of national estimates of 
 air pollution damage, macrodata and microdata 
 sets have been merged. 
 
 The methodology used involved four major steps: 
 
 1. Pollution Generation- estimated air pollution 
 emissions 
 
 2. National Damage Estimates-estimation of the 
 damage value in 1970 dollars of the total 
 1968 emissions of the five principal types 
 
 of air pollutants 
 
 3. Calculation of Area Damages and Per Capita 
 Damages 
 
 4. Distributing Per Capita Damages -distributing 
 of these estimates to the population in order to 
 investigate the impact on different income and 
 racial groups. 
 
D-102 
 
 Abstract: The results are presented in terms of their 
 
 (cont. ) implications for the distribution of air pollution 
 
 damages among regions and among individuals 
 in different income and racial groups. The 
 authors conclude that this study warrants 
 further investigation and suggest three research 
 efforts which should be explored. 
 
D-103 
 
 Title: 
 
 Author(s): 
 
 Air Pollution Control in the Secondary Aluminum 
 Industry 
 
 Karl L. Guntermann 
 
 Source Title; 
 
 Land Economics 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 August, 1973, p. 285. 
 
 1976 
 
 Description of the secondary aluminum industry, 
 including air pollution problems and control technologies, 
 benefit-cost analysis 
 
 The cost of air pollution control for the secondary 
 aluminum industry is estimated for three standards: 
 (1) complete abatement, (2) 58% abatement and 
 (3) a differential standard providing for complete 
 control in urban areas and 58% abatement in rural 
 areas. These standards apply to aluminum chloride, 
 the major pollutant produced by the industry. Annual 
 costs of satisfying the emissions standards are 
 estimated nationwide for two rates of industrial 
 growth between 1970 and 1990. 
 
 Cost-benefit analysis is outlined as a means of 
 deciding what standard to impose. The major problem 
 with this approach is estimating a damage function 
 that assigns a dollar value to society of abatement. 
 A cost-benefit study performed for a rural smelter 
 in Indiana is described. This case study used an 
 atmospheric diffusion model to estimate the maximum 
 ground-level concentration of pollutant from the smelter. 
 
 The author cites statistics outlining the geographical 
 distribution of secondary aluminum smelters among 
 the Nation's regions and notes that two -thirds of them 
 are located in or near metropolitan areas. The 
 locational impact of a differential rural-urban standard 
 is implicit but no attempt is made to quantify it. 
 
D-104 
 
 Title: 
 
 Vocational Analysis 
 
 Author(s); 
 
 Curtis C. Harris, Jr. , Frank E. Hopkins 
 
 Source Title: 
 
 Citation- 
 
 Year: 
 
 Subject: 
 
 D. C. Heath and Company 
 
 1972 
 
 Model for industrial location 
 
 Abstract: 
 
 The book presents an interregional, multi- industry 
 model designed to explain industrial location. The 
 model considers two groups of stimuli to industry 
 location-regional factor prices and regional 
 agglomeration effects. Multivariate regression 
 analysis is used to examine the importance of 
 various explanatory variables on location as 
 measured by the change in output. The model 
 accounts for interregional and interindustry 
 relationships. The major data source is the County 
 Business Patterns for 1965 and 1966. Other data 
 sources include Waterborne Commerce of the 
 Corps of Engineers, Highlights of U.S. Export and 
 Import Trade , 1963 Census of Business, Annual 
 Survey of Manufactures, 1965 and 1966 and the 1963 
 Census of Transportation. 
 
D-105 
 
 Title: 
 
 Author(s); 
 
 An Analysis of the Changing Location of Iron and 
 Steel Production in the Twentieth Century- 
 John S. Hekman 
 
 Source Title: 
 
 The American Economic Review 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Volume 68, Number 1, p. 123 
 
 March, 1978 
 
 Geographic distribution of the iron and steel industry 
 in the United States 
 
 An attempt is made to explain why the steel industry has 
 grown more quickly in the Midwest (i. e. Chicago, 
 Cleveland, and Detroit) than in Pennsylvania between 
 1910 and 1972. In doing so the author relies on an 
 econometric model consisting of a demand equation and 
 a supply equation. * 
 
 With this model two theories explaining the relative west- 
 ward shift of the steel industry are evaluated and found 
 to be inadequate. The first of these theories, by Walter 
 Isard, attributes this locational shift to a change in the 
 steel industry's cost function brought about by coal-saving 
 technological changes. The other theory, by George 
 Stocking, suggests that the elimination of the single 
 basing-point price system was responsible. Hekman, 
 however, finds that the differential growth in demand by 
 steel-using industries constitutes the crucial factor 
 responsible for the greater growth of western producers. 
 Environmental factors are not discussed in this report. 
 
 *For the demand equation 
 
 Q = f (P, R, V) 
 and for supply equation 
 
 P= q(W, K, S, C, O) 
 
D-106 
 
 where 
 
 P = Log of weighted regional price index for steel 
 
 products divided by the Wholesale Price Index (WPI) 
 
 Q = Log of tons of steel produced in the region 
 
 R = Log of the price of aluminum ingots divided by WPI 
 
 V = Log of value-added in manufacturing (less VA in iron 
 
 and steel) by SMSA for each market area, divided by the 
 
 transportation cost factor (1 + c) and summed over all 
 
 SMSA's in the market region, divided by the WPI 
 
 W = Log of yearly wages in the iron and steel industry 
 
 by region, divided by the WPI 
 
 K = Log of Pk (r + d)/WPI, where P^ = a price index of 
 
 capital goods, r = Moody's Industrial Bond Rate, and 
 
 d = rate of depreciation for capital goods in the steel industry. 
 
 S = Log of the price per ton of No. 1 Heavy Melting Steel 
 
 Scrap in each region, divided by the WPI 
 
 C = Log of price per ton of blast furnace coke in each 
 
 region, divided by the WPI 
 
 O = Log of the price of iron ore per* ton, at the dock 
 
 of lower Great Lakes ports, divided by WPI 
 
D-107 
 
 Title: 
 
 State Financial Incentives to Industry 
 
 Author(s): 
 
 Darge A. Hellman, Gregory H. Wassal, 
 Laurence H. Falk 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Lexington Books, Lexington, Massachusetts 
 
 1976 
 
 Impact of incentive programs on industrial 
 location 
 
 This book is an attempt to clarify the role of 
 state industrial incentive programs and 
 their influence on the investment and location 
 decisions of firms. The authors start with 
 a description of the various state financial 
 incentive programs and trace the history of 
 each program as it developed in the U. S. 
 The authors conclude in this section that 
 loan and loan guarantee programs are growing 
 in use, and although firms consistently rank 
 incentives low when enumerating location 
 determinants, states continue to offer incentives. 
 Based on a theoretical model of firm behavior 
 that is developed, the potential of financial 
 incentives to alter the location decision of 
 firms is assessed. With the theoretical 
 discussion as background, the authors proceed 
 with an empirical examination of the impact 
 of industrial incentives on state investment 
 activity. Benefit-cost ratios for three prototype 
 programs are evaluated. Based on conclusions 
 derived from their study, the authors provide 
 recommendations for state and national policy 
 concerning state financial incentives. 
 
D-108 
 
 Title; 
 
 Economic Disincentives for Pollution Control: Legal, 
 Political and Administrative Dimensions 
 
 Author(s): 
 
 W. A. Irwin, R. A. Liroff 
 
 Source Title: 
 
 Socioeconomic Environmental Studies Series 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Office of Research and Development, Environmental 
 Protection Agency 
 
 1974 
 
 Economic disincentives for pollution control 
 
 Abstract: 
 
 This report defines an economic disincentive as a 
 monetary charge levied by government on conduct 
 which is not illegal but which does impose social 
 costs, for the principal purpose of discouraging 
 the conduct. The constitutionality of federal or 
 state imposition of disincentives is examined and 
 the authority of the EPA and states to utilize 
 disincentives under selected federal environmental 
 statutes is analyzed. The legality of some disin- 
 centives adopted by states is discussed. The 
 charges imposed by several European countries 
 are described and distinguished from disincentives. 
 The history of some previous proposals for federal 
 disincentives is reviewed and suggestions for 
 additional disincentives which might be feasible 
 are offered. 
 
D-109 
 
 Title: 
 
 Author (s): 
 
 Regional Science and Research on Environmental 
 Management 
 
 Walter Isard 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Working Papers on the Use of Regional Science Techniques 
 in Environmental Management 
 
 Regional Science Dissertation and Monograph Series #3, 
 Center for Urban Development Research, Cornell University 
 June 1974, pp. 1-46 
 
 Techniques for analyzing environmental management 
 problems 
 
 Paper presents an overview of various regional science 
 techniques that have been found to be useful separately 
 and in combination for the analysis of many complex 
 environmental management problems. The paper discusses 
 the problem of local and regional unemployment that arises 
 because emissions and other environmental regulations 
 may lead to higher production costs and lead to force the 
 closing down of marginal plants, particularly when they 
 compete with plants in other locations not subject to the 
 same stringent regulations and the extent to which the 
 increments to operating costs consequent to air, water 
 and solid waste regulation can be offset. A study of 
 Watertown, New York is used to demonstrate the analyses. 
 Sources of the data base which for the most part were 
 direct interviews and surveys, include Division of Air 
 Resources, Pure Waters and Solid Waste Engineering 
 of the NY State Department of Environmental Conservation, 
 the Environmental Protection Agency, and in addition, other 
 
 agencies and journals. Isard concludes that many 
 channels of synthesis are possible but must be de- 
 signed in part with reference to the specific environ- 
 mental problem to be attacked. 
 
D-110 
 
 Title: 
 Author(s): 
 
 Some Simple Air Pollution and Urban-Regional 
 Growth Models 
 
 Walter Isard, Panagis Liossatos 
 
 Source Title: 
 
 Papers of the Regional Science Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 29 
 
 1972 
 
 Air pollution and urban- regional growth models 
 
 Abstract: 
 
 The two main objectives of Isard 1 s and Liossatos' 
 paper are : 1) to develop a framework based on 
 
 growth (intertemporal) models for examination 
 of air pollution problems, and 2) to develop the 
 relevant concepts in a manner in which diverse 
 locatibnal, regional and spatial problems can be 
 reexamined, particularly in conjunction with the 
 use of standard regional science techniques such 
 as input-output analysis. The authors examined 
 a simple Ramsey-type model, with one polluting 
 good and one abatement good, a simple model of two 
 consumption (one polluting and one non-polluting) 
 goods plus an abatement good, and models 
 involving capital replacement, increasing labor 
 productivity, and time discounting of utility. With 
 the model, the implications of diverse air pollution 
 growth models on the location of facilities (polluting 
 and non-polluting) and on agglomerative forces and 
 
 location force fields can be examined. 
 
D-lll 
 
 Title: 
 
 A Locational Analysis for the Petrochemical Industry 
 
 Author (s): 
 
 Walter Isard and Larry Parcels 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Unpublished report, December, 1977 
 1977 
 
 Existing and projected geographic distribution of the 
 petrochemical industry in the United States 
 
 The locational pattern of the petrochemical industry 
 among nine U.S. census regions is projected for 
 1975 and 2000. As domestic oil and natural gas is 
 replaced by imported oil as a source of feedstocks, 
 it is expected that market location will be the main 
 economic criterion for plant siting. 
 
 The effect of environmental pressures on industrial 
 location is discussed, with the author citing a recent 
 successful effort by environmentalists in California 
 to block the construction of a plant in that state. A 
 vice-president of the Dow Chemical Company is 
 quoted as saying that "Dow does not intend to go 
 into an area and build a plant when the local . . . 
 bodies are not receptive. " 
 
 Future interregional petrochemical shipments are 
 estimated. Finally, the possible use of coal as a 
 feedstock in lieu of oil and natural gas is discussed. 
 
D-112 
 
 Title: 
 
 A Locational Analysis for the Aluminum Industry 
 
 Author (s): 
 
 Walter Isard and Larry Parcels 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Unpublished report, December, 1977 
 1977 
 
 Existing and projected geographic distribution of 
 the aluminum industry in the United States 
 
 The existing aluminum industry in the United States 
 is described, with 1965 serving as a base year. A 
 quick analysis under present technological and 
 economic conditions reveals that the potential advan- 
 tages of the minimum transport cost location for an 
 aluminum plant are clearly outweighed by the large 
 power cost savings accruing from locating the plant 
 at a cheap power location. This holds true even 
 with a fairly small differential in power rates 
 between the two locations. 
 
 Projections of aluminum consumption are made for 
 nine U.S. regions and five industrial sectors in 
 1985 and 2000. Projections are also made for 
 foreign imports and exports and interregional 
 shipments within the U. S. Finally, future cost 
 differentials between the regions are estimated 
 (the Rocky Mountain area has the most favorable 
 differential). The impact of environmental factors 
 on location is not discussed. 
 
D-113 
 
 Title: 
 
 Author (s): 
 
 Regional Pattern of Iron and Steel Production, 
 1985 and 2000. 
 
 Walter Isard and Larry Parcels 
 
 Source Title: 
 
 Citation: 
 Year: 
 Subject: 
 Abstract: 
 
 Unpublished Report, December, 1977 
 
 1977 
 
 Existing and projected geographic distribution of 
 the iron and steel industry in the United States. 
 
 Two projections (conservative and optimistic) for 
 the American steel industry's growth are made. 
 The conservative projection is totally consistent 
 with estimates developed by Brookhaven National 
 Laboratory using an input-output model. The 
 optimistic scenario is based on exogenous 
 predictions of steel demand made by three other 
 sources. * 
 
 Steel production in 1985 and 2000 is estimated for 
 nine U.S. regions. Steel demand is projected for 
 each region and for six industrial sectors. Future 
 interregional shipments and foreign imports and 
 exports are also estimated. Environmental factors 
 are briefly mentioned as a possible constraint 
 against steel plant development. The interaction 
 of the environment and industrial location does not 
 plan an integral part in this report, however. 
 
 *These three sources are: 
 
 1) U. S. Industrial Outlook. Prepared by the Domestic 
 and International Business Administration (DIBA has 
 become the Industry and Trade Administration), U.S. 
 Department of Commerce, 1977. 
 
 2) Reverend William T. Hogan, op. cit. 
 
 3) Corporate Research Department of the Morgan 
 Guaranty Trust Company, "The Domestic Steel 
 Indus try -Outlook and Financing Implications. " 
 June 1975. 
 
D-114 
 
 Title: 
 
 Author(s): 
 
 Disaggregated Intertemporal Models with an 
 Exhaustible Resource and Technical Advance 
 
 M. I. Kamien, N. L. Schwartz 
 
 Source Title: 
 
 Journal of Environmental Economics and Management 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 4, Number 4, pp. 271-288 
 
 1977 
 
 Comparative Economic Analysis 
 
 Abstract: 
 
 The report compares four ways in which an economy 
 can be organized which are dependent upon a irre- 
 plenishable resource but may develop a new technology 
 that releases that dependence. A decentralized compet- 
 itive organization can replicate the behavior of a 
 centrally planned economy, given an appropriate dis- 
 tribution of initial wealth. This holds whether the 
 research and design is done by the government or by 
 the natural resource sector, so long as borrowing from 
 other sectors is possible. Further, the economy's 
 behavior is independent of whether the resource 
 sector is monopolistic or competitive if and only if 
 the production function is Cobb-Douglas. 
 
 
D-115 
 
 Title: 
 
 Author (s): 
 
 Prepared Statement on the Economic Impact of 
 Environmental Regulations 
 
 Edward R. Kane 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Hearings before the Joint Economic Committee, 
 Congress of the United States 
 
 November 21, 1974 
 
 1974 
 
 Economic effects of Pollution Control 
 
 Abstract: 
 
 The statement describes 1) the inflationary implications 
 of pollution control in terms of du Pont Company's 
 control expenditures, projected expenditures and 
 other high costs impacting on production, and 2) the 
 recessionary implications of pollution control noting 
 that the cost of pollution control investment must 
 ultimately be reflected in higher prices in the 
 marketplace or in reduced levels of capital 
 
 investment as the return on investment falls below 
 the cost of money. The author concludes that 
 standards can only be met through higher investment 
 and operating costs for control equipment, heavier 
 research expenditures, the consumption of more 
 energy and scarce raw materials, and the closing 
 of existing plants. The author recommends that 
 cost-benefit analyses be done to help determine 
 standards of control and that regulation timetables 
 be more flexible. 
 
D-116 
 
 Title: 
 
 Industrial Location and Air Pollution Abatement 
 
 Author(s): 
 
 Robert E. Kohn 
 
 Source Title: 
 
 Journal of Regional Science 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 14, Number 1 
 
 1974 
 
 Industrial location and abatement, 
 
 Abstract: 
 
 This paper is an empirical study of pollution control costs 
 as a function of location. Assuming that the air quality- 
 standards eliminate all pollution damage, the social costs 
 associated with the allowable pollution levels are the abate- 
 ment costs which each polluter's presence imposes on other 
 polluters. The multipollutant linear programming model 
 generates both the private and the external costs of abate- 
 ment associated with a particular firm's location. The 
 model examined was implemented using projected produc- 
 tion and consumption levels for the St. Louis Airshed in 
 1975, focusing on the cost abatement for Granite City Steel 
 Company in regards to its location in relationship to the 
 St. Louis CAMP (Continuous Air Monitoring Program) 
 Station. Kohn concludes that there is a tradeoff between 
 two categories of pollution control, technological abatement 
 and locational choice, with the results suggesting the 
 possibility that locational adjustments could offset substan- 
 tial expenditures on technological abatement. However, 
 Kohn's study indicates that an optimal combination of two 
 control categories may not, under certain circumstances, 
 be achieved with pollution fees. 
 
D-117 
 
 Title: 
 
 Author (s): 
 
 A Regional Economic Model for the Assessment 
 of the Effects of Air Pollution Abatement 
 
 T. R. Lakshmanan, Fu-chen Lo, CONSAD Research 
 Corporation 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Presented at the Regional Science Association Fourth 
 British Section Meeting 
 September 1971 
 
 Model for assessment of abatement strategies 
 
 Abstract: 
 
 The purpose of this paper is to develop and demonstrate 
 an Economic Model for assessment of abatement 
 strategies for Air Quality Control Regions. The model 
 provides a simulation of regional economies and 
 generates the consequences of alternative control 
 strategies of interest to policy planners in terms of 
 a variety of economic indicators. The regional 
 model was estimated, using 1967 regional economic 
 data. The authors present three strategies: 1) Industry 
 Pays, 2) Hands Off, and 3) Cost Sharing. The authors 
 conclude that this paper must be viewed as a progress 
 report on an operational first version of a model under 
 continued development and utilization. 
 
D-118 
 
 Title: 
 
 Author (s): 
 Source Title: 
 Citation: 
 Year: 
 Subject: 
 
 Abstract: 
 
 Effects of State Pollution Control Programs 
 on Industrial Location 
 
 Keith R. Leintner and M. Jarvin Emerson 
 
 Unpublished report 
 
 1978 
 
 Statistical study of industrial location 
 effects of environmental regulation 
 
 Leitner and Emerson investigate the hypothesis 
 that, if industrial pollution control programs have 
 altered the cost structures of many industries in a 
 spatially uneven manner as a result of interstate 
 variations in such programs, the location of heavy 
 polluting industries will be affected by these inter- 
 state differences in pollution control programs. 
 Air quality standards, water quality standards, 
 public waste treatment facilities, state and local 
 taxes, and revenue bonds are incorporated into a 
 traditional multivariate, empirical location model, 
 utilizing crude estimates of the cost of compliance 
 by state along with conventional industrial location 
 market and cost variables. The data base and years 
 studied are 1968 to 1972, since many state 
 programs did not exist before 1968. Data limitations 
 and the validity of the model construct are briefly 
 but not thoroughly discussed. The results indicate 
 that pollution control factors have had a marginal 
 but significant effect on locational shifts of heavy 
 polluting industries. Air quality standards were 
 found to be a significant locational determinant for 
 one of seven "heavy pollution" industries, water 
 costs for five of these industries, and public waste 
 treatment for two. Tax revenue bond differences 
 were also found to be significant for a few of these 
 industries. 
 
D-119 
 
 Title: 
 
 Industrial Siting and the Clean Air Act. 
 
 Author (s): 
 
 Constance K. Lundberg 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Presented at the Environmental Law Institute: 
 Conference on Energy and Public Lands, Utah 
 
 August 23-26, 1976 
 
 1976 
 
 Impact of federal air pollution laws on industrial 
 siting. 
 
 The provisions of existing federal air pollution laws 
 that permit and condition specific industrial growth 
 are analyzed. ■ The impact of federal laws on the 
 allocation of industrial growth among the three types 
 of Air Quality Control Regions is discussed. Relevant 
 regulations and judicial interpretations of the laws are 
 presented. Pending legislation and proposed regu- 
 lations are also reviewed. 
 
D-120 
 
 Title: 
 
 Author (s): 
 
 A Note on the Use of Property Values in Estimating 
 Marginal Willingness to Pay for Environmental Quality 
 
 Karl-Goran Maler 
 
 Source Title: 
 
 Journal of Environmental Economics and Management 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 4, Number 4, pp. 355-369 
 
 1977 
 
 Estimation of damage function on property values 
 
 Abstract: 
 
 The principle purpose of this paper is to discuss the 
 theoretical background of the use of property values 
 in estimating damage function. In the first part of 
 the paper a general equilibrium model is constructed 
 in which environmental quality differences are 
 capitalized into land rents. In the second part of 
 the paper some of the assumptions needed for this 
 result are scrutinized, and it is found that they are 
 hardly realistic. The main conclusion is, thus, that 
 the study of property values cannot give viable 
 estimates of the marginal willingness to pay for 
 environmental quality. 
 
D-121 
 
 Title 
 
 An Economic Theory of Pollution Control 
 
 Author ( s ) 
 
 Vijay K. Mathur, Hiroyuki Yamada 
 
 Source Title: 
 
 The Regional Science Association Papers 
 
 Citation: 
 
 Volume 28, pp. 223-235 
 
 Year: 
 
 1971 
 
 Subject: 
 
 Pollution management methods 
 
 Abstract : 
 
 Mathur and Yamada address the desired level of 
 pollution in a region and determine the set of 
 prices and user charges which would insure that 
 level of pollution. These problems are approached 
 via two optimization models of pollution and its 
 control for a region. Both models are static 
 because of the author's belief that a clear under- 
 standing of a complex problem like pollution 
 control requires first an uncomplicated, though 
 comprehensive, static-theoretical framework. The 
 basic model uses optimization techniques to derive 
 the first-order conditions which must be satisfied 
 to obtain the shadow price of the pollution good, 
 and establish the user charge which must be 
 imposed on the pollution good in order to achieve 
 the desired level of pollution. The extended 
 model incorporates the interaction between pollu- 
 tion concentration, a stock variable, and pollution 
 flows from two sources as well as externalities . 
 The model uses two pollution goods which enables 
 a discussion of the most general case where 
 abatement is done by both private sources and by 
 a public authority. The main conclusion in the 
 paper is that in order to derive the optimal level 
 of pollution concentration in a region and the 
 optimal shadow prices of goods and pollution and 
 the resultant pollution charges , one has to account 
 for not only the various tradeoffs in production 
 and consumption but also the various types of 
 externalities of pollution and of abatement. 
 
D-122 
 
 Title : 
 
 Author (s): 
 
 Why Manufacturers Choose Plant Location vs, 
 Determinants of Plant Locations 
 
 T.E. McMillan, Jr. 
 
 Source Title: 
 
 Land Economics 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume XII, Number 3, pages 239-244 
 
 1975 
 
 Industrial location. 
 
 Abstract: 
 
 This article discusses the results of surveys administered 
 to area manufacturers to determine why they chose a 
 particular area. Raw materials and market generally 
 ranked first or second in the survey results. One survey 
 conducted by Industrial Economics Research Division, 
 Texas Engineering Experiment Station, Texas A&M Uni- 
 versity in October 1954, included laws and regulations in 
 its categories of determinants. Results from 350 weighted 
 returns indicated that one firm considered it first, 2- 
 second; 5-third; 6-fourth; and 14-fifth. The other 
 respondents did not consider regulations to be crucial 
 to industrial siting. Results are summarized in -the table 
 below. 
 
 Positions of Location Factors (from 350 Weighted Returns) 
 
 
 
 
 
 
 
 Total 
 
 Percent 
 
 Factor 
 
 1st 
 
 2nd 
 
 3rd 
 
 4th 
 
 5th 
 
 Points 
 
 Weight 
 
 Market 
 
 118 
 
 44 
 
 35 
 
 24 
 
 13 
 
 928 
 
 18.9 
 
 Labor 
 
 33 
 
 78 
 
 45 
 
 34 
 
 31 
 
 711 
 
 14.5 
 
 Raw Materials 
 
 73 
 
 3G 
 
 18 
 
 17 
 
 8 
 
 CJ5 
 
 12.3 
 
 Building 
 
 26 
 
 28 
 
 29 
 
 15 
 
 9 
 
 368 
 
 7.5 
 
 Site 
 
 18 
 
 30 
 
 22 
 
 14 
 
 25 
 
 329 
 
 6.7 
 
 Transportation 
 
 14 
 
 32 
 
 32 
 
 31 
 
 22 
 
 378 
 
 7.7 
 
 Distribution 
 
 10 
 
 25 
 
 37 
 
 31 
 
 20 
 
 343 
 
 7.0 
 
 Living Conditions 
 
 14 
 
 11 
 
 29 
 
 35 
 
 35 
 
 306 
 
 6.2 
 
 Climate 
 
 11 
 
 8 
 
 11 
 
 22 
 
 25 
 
 189 
 
 3.9 
 
 Industrial Fuel 
 
 3 
 
 12 
 
 20 
 
 14 
 
 14 
 
 165 
 
 3.4 
 
 Water 
 
 3 
 
 7 
 
 12 
 
 10 
 
 8 
 
 107 
 
 2.2 
 
 Industrial Power 
 
 
 
 3 
 
 14 
 
 15 
 
 11 
 
 95 
 
 1.9 
 
 Financial Help 
 
 8 
 
 7 
 
 7 
 
 7 
 
 5 
 
 108 
 
 2.2 
 
 Taxes 
 
 5 
 
 5 
 
 3 
 
 14 
 
 22 
 
 104 
 
 2.1 
 
 Laws and 
 
 
 
 
 
 
 
 
 Regulations 
 
 1 
 
 2 
 
 5 
 
 6 
 
 14 
 
 54 
 
 1.1 
 
 Miscellaneous 
 
 15 
 
 5 
 
 2 
 
 1 
 
 4 
 
 107 
 
 2.2 
 
 Source: Survey by Industrial Economics Research Division, Texas Engineering Experiment Station, 
 Texas A k M University, October 1954. 
 
D-123 
 
 Title : 
 
 Author (s) : 
 Source Title: 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 The New England States and Their Economic Future: 
 Some Implications of a Changing Industrial Environment 
 
 John R. Meyer and Robert A. Leone 
 
 Sessions : Problems of Regional Economic Development 
 
 Proceedings , American Economic Association, May 1978 
 pp. 110-115 
 
 1978 
 
 Long run locational influences of regional change 
 
 Meyer and Leone find promising the attraction by New 
 England of firms from the New York region in recent 
 years, thus prompting an investigation of intra- 
 snowbelt migration: the sunbelt-snowbelt dichotomy 
 is found to be too gross, in and of itself, and 
 disaggregation is required. (Dun and Bradstreet 
 indicator tapes, for successive years, were used to 
 trace these firm's movements.) This recently 
 favorable locational position is traced to long run 
 equilibrating forces: New England's "long-term 
 suffering" has helped reduce New England's manufac- 
 turing costs in relative terms; comparable replacement 
 costs (elsewhere) of New England's extensive public 
 infrastructure are increasingly rising due to 
 changing factor prices, general inflation, government 
 regulations, and in some cases, diminishing returns, 
 including the fact that the "capital cost of new 
 capacity (elsewhere) grew substantially due to expan- 
 sive antipollution requirements," exacerbated by 
 average cost pricing (based on regulatory rulings) 
 which the authors allege impart a severe bias against 
 expansion of capacity elsewhere, e.g., of utilities 
 and other capital-intensive regulated industries. 
 The authors also find many interesting secondary but 
 still important, locational changes in the industrial 
 environment which favor growth, or at least stability, 
 for New England locations. Illustratively: rising 
 energy prices are not likely to cause the steel 
 industry, as conventionally established in large-scale 
 open hearth and basic oxygen process mills, to leave 
 Gary, Indiana, for Worcester, Massachusetts, but they 
 may encourage the relative growth of less energy- 
 intensive, direct reduction minimills which are 
 attracted to high-density sources of steel scrap, such 
 as Worcester. Lessening regional comparative advan- 
 tage, nationwide, is forecast, and implications are 
 drawn. 
 
D-124 
 
 Title: 
 
 Author (s): 
 
 Environmental Management and Regional Economic 
 Development 
 
 W. H. Miernyk and J. T. Sears 
 
 Source Title; 
 
 Air Pollution Abatement and Regional Economic 
 Development 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Lexington Books, D. C. Heath and Company, 
 
 Lexington, Massachusetts 
 
 1974 
 
 Economic impact of pollution control 
 
 Abstract: 
 
 This chapter summarizes the results of a study to 
 measure the direct and indirect costs of compliance 
 •with clean air standards. The data were collected 
 from 16 of the 48 basic sectors in the West Virginia 
 input-output model. Results showed that the increase 
 in operating costs resulting from regulations were 
 relatively small but the investment requirements 
 for meeting standards are large. 
 
 Two major conclusions were reached: 
 
 1) When large sums of money are being expended 
 
 for the development of coal gasification processes, 
 simulation might provide useful guidelines for the 
 allocation of research funds. 
 
 2) Regional development policy has been concerned 
 almost entirely with direct assistance to private 
 establishments locating or expanding in develop- 
 ment areas, and investment in public facilities , 
 in those areas. A supplement to this approach 
 could be direct investment in new processes - 
 such as coal gasification-even though these 
 could operate successfully only in selected 
 development areas. 
 
 The authors note that laws designed to protect the 
 environment could inhibit regional economic develop- 
 ment if industrialists in a given region chose to relocate 
 rather than invest in abatement equipment at their 
 present locations. 
 
D-125 
 
 Title: 
 
 Author (s): 
 
 Air Quality, Environment and Metropolitan Community 
 Structure 
 
 Carlisle E. Moody Jr. , Craig Humphrey 
 
 Source Title: 
 
 The Review of Regional Studies 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume III, Number 3, pp. 93-101 
 
 1974 
 
 Model for predicting costs 
 
 Abstract: 
 
 This report describes the development of an economic 
 sociological theory of air quality to allow production 
 of air pollution levels for metropolitan areas and 
 to allow estimation of the costs of air pollution 
 abatement and economic growth. The research 
 involved the construction of 41 separate indexes 
 for measuring urban structure, environment, and 
 pollution. The model enables one to predict the 
 costs in terms of increased air pollution of the 
 location of new manufacturing activities in a given 
 area. 
 
D-126 
 
 Title: 
 
 Author(s): 
 
 Modeling Analysis of Power Plants for Compliance 
 Extensions in 5 1 Air Quality Control Regions 
 
 P. Morgenstern et. al. 
 
 Source Title: 
 
 Journal of the Air Pollution Control Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 March 1975, Volume 25, Number 3, p. 287 
 
 1975 
 
 Impact of State Implementation Plan variances for 
 coal-fired power plants on SO2 air pollution and demand 
 for low- sulfur coal 
 
 The potential reduction in demand for low- sulfur coal in 
 1975 due to variances in State Implementation Plan (SIP) 
 requirements for coal-fired power plants is investigated. 
 These variances are considered for 51 Air Quality Control 
 Regions (AQCRs) in 20 states. In all cases the variances 
 are constrained so that primary air quality standards 
 are maintained. The authors found that full- variance 
 status could be given to 34% of the plants and limited 
 variances allowed for an additional 22% without 
 violating primary standards. With these variances 
 coal would have a weighted average of 2. 1% sulfur. 
 This compares with 1. 2% sulfur under full SIP regulations. 
 
 Ambient air quality resulting from variances was estimated 
 for each AQCR by a single source dispersion model developed 
 by EPA's Meteorology Laboratory. Maximum concen- 
 trations of SO2 were calculated as a function of wind 
 direction, wind speed, mixing height, Pasquill stability 
 class and topography. 
 
D-127 
 
 Title: 
 
 Author(s): 
 
 Statement on the Economic Impact of Environmental 
 Regulations 
 
 The National Association of Manufacturers 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Hearings before the Joint Economic Committee, 
 Congress of the United States 
 
 November 21-22, 1974 
 
 1974 
 
 Effect of regulations on small businesses 
 
 Abstract: 
 
 This statement describes the problems encountered 
 by small businesses because of environmental regu- 
 lations. 1) The small manufacturer is unable to 
 easily assemble the technical and. financial resources 
 to properly assess his pollution problems and arrive 
 at the most cost-effective solution. 2) Many small 
 business enterprises are able to operate profitably 
 only because they are located in older facilities with 
 correspondingly less overhead expenses which prove 
 the most expensive in which to install pollution control 
 equipment. 3) Because of the normal economy of 
 scale factors in purchasing control equipment, the 
 small manufacturer will be paying a penalty for his 
 smaller capacity. 4) Acquiring financing at low 
 interest rates will be a major problem for many 
 small business. 5) The small manufacturer is unable 
 to pass on these costs to his customers in relation 
 to his larger competitors. 
 
 The author uses as example, the impact of regulations 
 on the foundry industry (in Wisconsin, 10% (375) of the 
 foundries have closed) and the food processing industry. 
 The statement concludes that the implementation of 
 new environmental control regulations should be designed 
 to attain desirable cost-benefit results, to minimize 
 adverse economic dislocations, and to permit fair 
 competition in the domestic and foreign marketplace. 
 
D-128 
 
 Title: 
 
 Author (s): 
 
 Comments On the Economic Impact of Environmental 
 Regulations 
 
 The National Canners Association, Roger Huibregtse 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Hearings before the Joint Economic Committee, 
 Congress of the United States 
 
 November 21-22, 1974 
 
 1974 
 
 Plant closings, Pollution regulations 
 
 Abstract: 
 
 The paper describes the effluent limitations guidelines 
 and the pesticide use control standards which effect 
 the canning industry and their economic impacts. The 
 regulations will raise the costs of goods for consumers 
 and the author emphasizes a need for cost-benefit 
 analysis. A study is cited which indicates that 160 
 of the industry's 550 plants that treat their own 
 wastewater will be forced to close if required to 
 reduce their BOD and suspended solids discharges 
 by 90%, about 230 will close at 95% reduction. Almost 
 50 plants of 500 that use irrigation disposal will close 
 and more than 200 plants of the 1,100 that use city 
 treatment systems will close because of increased 
 charges. This includes nearly all small plants and 
 affects about 58, 000 full and part-time employees. 
 
 The author discusses alternative financial means 
 and timetables for alleviating pollution problems and 
 urges flexibility in regulations. 
 
D-129 
 
 Title: 
 
 Major Determinant of Location Patterns 
 
 Author (s): 
 
 G. M. Neutze 
 
 Source Titles: 
 
 .Land Economics 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume XLIII, Number 2 
 
 May, 1967 
 
 Location patterns, determinants for industries and towns 
 
 Abstract: 
 
 This article describes the four major influences on 
 location patterns: natural features, costs of transport 
 and communication, production technology and demand 
 patterns. These influences determine the location and 
 spacing of the first towns to appear in a region which is 
 important because of the immobility of industries and 
 towns. By examining the process of town formation in 
 a context of regional economic growth it has been possible 
 to paint a picture of the original process. As long as 
 inertia is not underrated, changes in the above factors 
 can help to explain many of the changes that occur in 
 patterns of location. 
 
D-130 
 
 Title: 
 
 Air Pollution Control Philosophies 
 
 Author (s): 
 
 Noel de Nevers 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Journal of the Air Pollution Control Association- 
 Reprinted in the Senate Congressional Record 
 
 February 25, 1977 
 
 1977 
 
 Purposes and effects of various air pollution regulations 
 
 Abstract: 
 
 The purpose of this paper is to examine the ideas on 
 which air pollution regulations are based. In order 
 to do this, the author discusses air pollution 
 philosophies which he defines as "a fundamental 
 idea or set of ideas about how one would determine 
 what constitutes an appropriately clean environment, 
 appropriate control costs, etc. " A perfect air 
 pollution philosophy (and its implementing regulations) 
 would be cost-effective, simple, enforceable, flexible 
 and evolutionary. The article describes four 
 philosophies, their advantages and disadvantages. 
 Emission Standards - Although emission standard 
 controls are rated excellent in the areas of enforce- 
 ability and simplicity, the standards are rated poor 
 in cost-effectiveness and flexibility and fair in their 
 evolutionary ability. Air Quality Standards -Rated 
 poor in enforceability and simplicity, fair in flexibility 
 and evolutionary ability, good in cost-effectiveness. 
 Emission-Tax Philosophy - Although it cannot be rated 
 in terms of the lists of qualities because it is not 
 known how legislation would work, this philosophy 
 has two desirable results: 1) the level of pollution 
 control would be made an internal economic decision 
 by an individual company, and 2) it should minimize 
 the misallocation of pollution control resources. 
 Cost Benefit Philosophy -This philosophy deals with 
 
D-131 
 
 the question of how much damage we should accept 
 and how much we should be willing to spend to reduce 
 damages to this level. The complexity of this philosophy 
 is enormous and a more probable approach would be 
 the use of cost-benefit analysis to set emission or 
 air quality standards. The author briefly discusses the 
 effects of these philosophies on industry and on the 
 public. The author suggests that this kind of analysis 
 should become a formal, publicly debated part of 
 air pollution regulation- setting procedures. 
 
D-132 
 
 Title: 
 
 An Interregional Model of Environmental Choice 
 
 Author (s): 
 
 P. Nijkamp and J. H. P. Paelinck 
 
 Source Title: 
 
 Papers of the Regional Science Association 
 
 Citation: 
 
 Year; 
 
 Subject: 
 
 Abstract: 
 
 Volume 3 1 
 
 1973 
 
 Theoretical approach for interregional environmental 
 problems 
 
 Nijkamp and Paelinck assert that since economic growth 
 influences the quality of the environment, either in a 
 positive or negative way, the consequence of certain 
 environmental priorities is some sort of "enlightened" 
 economic development. The authors hypothesize that, 
 in general, environmental priorities may be introduced 
 into the development process in various ways. The 
 paper goes on to attempt the construction of an inter- 
 regional model for optimal investment allocations 
 within a given spatial system, while guaranteeing a 
 predetermined profitability on capital investment, 
 sufficient quantities of final commodities for consumers, 
 sufficient levels of employment (or wage incomes) and 
 permissible levels of environmental deterioration. The 
 model proposed to handle the problem is a multi- sectoral 
 
 model, which attempts to use recently developed geometric 
 programming techniques to attain an optimal allocation 
 of various activities, taking account of environmental 
 preferences and other relevant side-conditions (constraints). 
 The model is subject to a sensitivity test wherein assump- 
 tions concerning the volume of minimum final demand 
 and the price level are relaxed. The ability to vary 
 prices in the model allows one to attain a permissible 
 level of physical environmental conditions. The authors 
 conclude that the model allows one to analyze and evaluate 
 the consequences of pollution abatement schemes and 
 changes in activity structure (e. g. , input substitution, 
 alternative production processes and recycling operations). 
 
D-133 
 
 Title: 
 
 Economic Analysis of Air Pollution 
 
 Author (s): 
 
 Delbert C. Ogden 
 
 Source Title: 
 
 Land Economics 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 May, 1966, p. 137. 
 
 1966 
 
 Impacts of air pollution, welfare economics and 
 benefit-cost analysis 
 
 An air pollution damage model is presented for 
 estimating the impact of point- source pollutant 
 emissions on ambient air quality. The concentration 
 of a pollutant in any zone is defined as a function of 
 the rate of emission, wind direction, wind velocity, 
 and vertical temperature profile. * Other metro- 
 logical factors (e.g., turbulence) may also be 
 included as independent variables. Values for the 
 equation's coefficients are estimated using data 
 collected by the U. S. Weather Bureau (now the National 
 Weather Service). In order to conduct a benefit- 
 cost analysis for alternative pollution control 
 strategies, a second relationship must be used that 
 defines damages (in dollars) in any zone as a 
 function of the concentration of each pollutant. ** 
 
 ♦Mathematically, 
 
 C = f(w, v, t, e) 
 where 
 
 C = Concentration of any pollutant in a given zone 
 
 w. = Wind direction 
 
 V = Wind velocity 
 
 t = Vertical temperature profile 
 
 e = Rate of emission 
 
 ♦♦Mathematically, 
 C = BC 
 where 
 
 C = Monetary value of damages resulting from 
 
 concentration C. 
 B = A coefficient whose value is estimated from 
 
 physical deterioration measurements, agronomic 
 experiments, etc. 
 
D-134 
 
 Title: 
 
 Pollution, Production, and Compensation 
 
 Author (s): 
 
 Clifford H. Patrick 
 
 Source Title: 
 
 The Review of Regional Studies 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 4, Supplement, pp. 61-66 
 
 1974 
 
 Effects of pollution and pollution control on production 
 
 Abstract: 
 
 In this article the relationship between pollution and 
 production is defined, and the effects of limitation 
 of pollution on production and the question of com- 
 pensation are examined theoretically. The frame- 
 work is applied to coal production in the eight- state 
 Appalachian Region to detemine possible alternative 
 levels at which coal may be produced in the future 
 as related to restrictions and regulations. 
 
 After establishing the relationship of production and 
 pollution, the effect upon the production of a pollution : 
 generating firm which is constrained to lower levels 
 of pollution, for example by government degree or by 
 public pressure, is examined. 
 
 Assume that the demand for a pollution- creating 
 product x can be specified as a linear function of the 
 form 
 
 Px = Po + m Qx, 
 where Px represents the price of output Qx and Po is 
 the intercept, and slope m = - Po/Qx<0. 
 Given the market price (Bj Po) of output QN with 
 present levels of pollution (where 0<lBi^l), then the 
 total revenue R of the firm can be derived as 
 
 R =( Q N (Po + mQx) dQx -Co ^(l-B^ Po + mQx 
 Bj Po QN 
 
D-135 
 
 Abstract: If constraints are placed upon the firm which limit 
 
 (cont) the amount of pollution Y\ created by the firm and 
 
 Yi = F (Qx) such that dY^/dQx>0, then these constraints 
 will result in a fall in production and a rise in price 
 respectively, aQN and B 2 Po where (0<a<l) and (0<B 1 <B 2 1) 
 However, the effect on the firm's total revenues may or 
 may not be adverse. 
 
 The two key factors to the analysis of change in 
 revenues are the specification of the demand curve 
 and whether the government or industry determines 
 how large a reduction in output will occur. This 
 study attempts to indicate that production and pollution 
 are directly related and that the latter is the result 
 of an overproduction of by-products due to production 
 decisions based on the private market mechanisms. 
 
D-136 
 
 Title: 
 
 Author(s): 
 
 Source: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Financing State Capital Outlays 
 
 John Petersen, Harvey Galper 
 
 State Government 
 
 Spring Issue, pp. 124-127 
 
 1970 
 
 Capital expenditures and financing 
 
 Abstract: 
 
 This article analyzes some patterns in capital 
 expenditures in 1970 and their financing and concludes 
 that high interest rates tended to forestall some 
 of the planned outlays. Borrowing (38 percent) 
 proved to be the major source of funds for states; 
 federal grants and loans (35 percent) and revenues 
 (27 percent) were of less significance. This differed 
 from city and county capital financing patterns where 
 60% of capital outlays were financed by borrowing 
 and only 15% by federal aids. This difference was 
 accounted for by the importance of highway expen- 
 ditures in the states' capital budgets. At the time 
 of the study (mid-year 1969) the deteriorating con- 
 dition of the bond market was making itself felt on 
 financing and expenditure plans. Thirty percent of the 
 states surveyed (13 of 43) indicated that they were in 
 various stages of trimming or setting back capital 
 projects because of the high cost of borrowing. 
 
D-137 
 
 Title: 
 
 Author(s): 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Are Taxable Municipal Bonds in Your Future? 
 
 John Petersen, Donald Kummerfeld 
 
 Nation's Cities 
 
 Volume III, Number 7, July 
 
 1973 
 
 Taxable municipal bonds 
 
 Abstract: 
 
 In this article, the authors analyze 1973 proposals 
 for a taxable municipal bond option and discuss the 
 potential impacts on city governments. The benefits 
 of the taxable municipal bond proposal include: 
 
 1) broadening the market for municipal bonds; 
 
 2) stabilizing the cost of state and local government 
 borrowing and protecting it against cyclical credit 
 squeezes; 3) improving the cost-effectiveness of 
 tax- exemption, both for local governments and the 
 federal government ; and 4) providing a "string-free" 
 alternative to categorical federal aid programs. 
 The authors conclude that the taxable municipal 
 bond option could provide important benefits to 
 municipal borrowers at little or no cost to the 
 federal government. Assuming the federal interest 
 subsidy is automatic and if the subsidy level is not 
 so high as to eliminate the tax exempt market, there 
 should be no threat to the state or local governments' 
 existing tax-exempt privilege or to their fiscal in- 
 dependence. 
 
D-138 
 
 Title: 
 
 Interaction of Population Growth, Industrial Growth 
 and Pollution Control 
 
 Author(s): 
 
 E. W. Peterson 
 
 Source Title: 
 
 Journal of the Air Pollution Control Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 January 1973, Volume 23, Number 1, p. 1 1 
 
 1973 
 
 The interaction of population growth, industrial growth 
 and pollution control is formalized in a model 
 
 A mathematical model is presented which formalizes 
 the effect of population growth, industrial growth and 
 pollution control measures on pollutant concentration. 
 Specifically, the time rate of change* of pollutant 
 concentration in the environment" in terms of the waste 
 production during some base year is expressed by the 
 following function: 
 
 where 
 
 dp/dt = w - p k 
 
 p is the pollutant concentration in terms of the total 
 waste production in a given area during some base yearj 
 w is the waste production rate for the given area in terms 
 of the waste production rate for the base year; 
 t is time in years, measured from the base year; and 
 k is time necessary for the pollutant concentration to be 
 reduced by 1 e (where e is the base of the natural logarithms] 
 in the absence of waste production. 
 
 The waste production rate w, depends on the degree of 
 industrialization of the society, the population density, 
 and the effectiveness of pollution control measures. As a 
 first approximation let w be given by 
 
 w = ( 1 + ht) [ ( 1 - b)e"g t + b]e rt 
 
D-139 
 
 Abstract: where 
 
 ' " ' h is the industrial growth rate expressed as a proportion 
 
 of the per capita productivity in the base year; 
 b is the minimum per capita waste production economically 
 and technologically attainable, expressed as a proportion 
 of the waste production rate during the base year; 
 e is base of the natural logarithms; 
 
 g is a factor which depends on the effectiveness of the 
 pollution control program, the larger g is the more 
 effective the program; and 
 r is the population growth rate, 
 
 Pollutant concentration levels are projected through the 
 year 2060 for differing assumptions concerning the 
 aforementioned parameters. The author finds that even 
 if per capita waste production is reduced to 1 percent 
 of its I960 value, pollutant concentration levels will 
 start to increase in 2000 unless the population stops 
 increasing. The author concludes that a permanent 
 improvement in environmental quality cannot be achieved 
 by pollution control measures alone. To obtain this goal, 
 he states that population and industrial productivity per 
 capita must stop growing. 
 
D-140 
 
 Title: 
 
 Author(s): 
 
 National Benefits Associated with Commercial 
 Application of Fuel Cell Powerplants 
 
 Power Systems Division, United Technologies 
 Corporation 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Prepared for the Energy Research and 
 Development Administration 
 February 27, 1976 
 
 Benefits involved with the use of fuel cell 
 powerplants 
 
 The objective of this report is to outline and 
 discuss the application opportunities for first 
 generation fuel cell powerplants, quantify 
 improvements that these systems can offer 
 in comparison with conventional electric 
 generation techniques, and, in the context 
 of a range of potential deployment scenarios, 
 quantify the benefit to the Nation as a result 
 of these improvements. The study assumes 
 that continued support of existing development 
 programs will result in the commercial 
 application of fuel cells in 1980. The potential 
 benefits associated with commercial deployment 
 of fuel cell powerplants during the 1980 to 
 1990 time period include fuel conservation, 
 energy cost savings, pollution damage reduction, 
 capital investment reduction, and improvement 
 in balance- of-payments. 
 
 On the basis of pollution damage costs defined 
 by an independent source, the damage reduction 
 resulting from the use of fuel cell powerplants 
 could, according to this report, result in savings 
 that range from $250 to $680 million in 1990 
 alone . 
 
D-141 
 
 Title: 
 
 Author(s): 
 Source Title: 
 Citation: 
 
 Year: 
 Subject: 
 
 Intra-Urban Industrial Location Model Design and 
 Implementation 
 
 Stephen H. Putman, CONSAD Research Corporation 
 
 Paper presented at the Thirteenth U.S. Annual Meeting, 
 Regional Science Association, St. Louis, Missouri 
 
 1966 
 
 Industrial Location Model 
 
 Abstract: 
 
 This paper describes the Industrial Location 
 Model-INIMP which was used as a submodel 
 in the Pittsburgh Urban Renewal Simulation 
 Model, which was a digital computer simulation 
 model for urban renewal decisionmaking purposes. 
 The Pittsburgh model system comprised three 
 major and several minor submodels. The three 
 major submodels were: 1) an Input/ Output 
 
 Interindustry model 2) INIMP and 3) Time 
 Oriented Metropolitan model. The task of 
 INIMP was to make the transition from the 
 projected city-wide employment total to census tract 
 projections and to maintain and update the data 
 file on the city's industrial plants and facilities. 
 The problem to be solved by INIMP was to 
 develop a valid and logical technique for 
 determining the census tract projections of 
 "basic" employment. The model accomplishes 
 this, and Putman concludes that while this 
 model has only been tested using Pittsburgh data, 
 its apparent ability to perform justify its being 
 tried on other problem situations within the 
 scope of urban and regional problems. 
 
D-142 
 
 Title: 
 
 An Analysis of Private and Public Sector Location Models 
 
 Author(s): 
 
 Charles Revelle, David Marks, and Jon C. Liebman 
 
 Source Title: 
 
 Management Science 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 16, Number 11, July, 1970, pp. 692-707 
 
 1970 
 
 Location models 
 
 Abstract: 
 
 Recent models of location are drawn together and compared 
 as to structure, criteria, and constraints. Private sector 
 models are distinguished as those in which the total cost 
 of transport and facilities is isolated as the objective to be 
 minimized. The solution techniques of six such models 
 are discussed. Public sector models are characterized 
 by a criterion function involving a surrogate for social 
 utility and by a constraint on investment in facilities or on 
 the number of facilities. Five models with this format 
 are discussed and compared. The two types of problems, 
 
 location in the private sector and location in the public 
 sector, are seen to have the same conceptual foundation, 
 but formats differ of necessity due to our inability 
 to relate social utility to dollar value. 
 
 Problems in location analysis can be classified into two 
 major structural categories. These categories are: 
 
 A. Location on a Plane 
 
 B. Location on a Network 
 
 A. Location on a plane is characterized by 
 
 (1) an infinite solution space. That is, central facilities 
 may be located anywhere on the plane and are confined 
 neither to nodes of the network nor to points on the 
 links between those nodes. 
 
 (2) distance measurements according to a particular 
 metric. One example is the Euclidian metric where 
 
D-143 
 
 df j = (xi - Xj ) 2 + ( yi - yj ) 2 
 
 dij = the distance between points i and j 
 
 x i» Yi = the coordinates in a rectangular system 
 of the ith point. 
 
 Another example is the metropolitan metric where 
 d ij =] x i " xj| + | yi - yj|. 
 
 B. Location on a network is characterized by 
 
 (1) a solution space consisting of points on the network 
 (both nodes and points on the arcs which join the nodes);, 
 
 (2) distance measurement or time measurement along 
 the network. 
 
 dj; = the length (time) of the shortest path 
 from node i to node j. 
 
 Define 
 
 wi = the weight attached to the ith point (goods demanded, 
 resources sent, population, etc. ); 
 xj , yi = the location of the ith point relative to some fixed 
 
 carthesian coordinate system; 
 Xp, yp = the unknown coordinates of the central point P; 
 n = the number of points which are served; and 
 
 "ip = the Euclidean distance from point i to central 
 point P. 
 
 The objective is 
 
 (1) Minimize 2 =^_.i=l wi£(xi - x p ) 2 + (yi - y p ) 2 J 2 
 
 (2) where d ip = [( Xi - x p ) 2 + ( Yi - y^f 
 
D-144 
 
 Title: 
 
 Author (s): 
 
 A Simulation Model for the Economic Assessment 
 of Alternative Air Pollution Regulations 
 
 Adam Rose 
 
 Source Title: 
 
 Journal of Regional Science 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 17, Number 3 
 
 1977 
 
 Simulation Model for pollution abatement planning 
 
 Abstract: 
 
 Rose's paper presents both the theoretical and 
 empirical sides of a simulation model for air pollution 
 abatement planning. It is an attempt to overcome 
 weaknesses relating to operational capabilities, 
 empirical quality and forecasting ability of a precursor. 
 The self-contained input-output model, using data of 
 Emission Point Files obtained from the New York 
 State Department of Environmental Conservation, 
 focused on environmentally related aspects of the 
 economy. Applying the model to a hypothetical 
 increase in control requirements for particulates 
 in the manufacturing sector of the New York State 
 economy during 1972, the simulation estimated direct 
 and indirect increases in annual abatement costs, 
 the additional investment in pollution control facilities, 
 the effect on the gross output of commodities and 
 the effect on the pollution flows of each industry. 
 The results of this simulation model indicate that 
 the adoption of state of the art control would not 
 have a significant adverse impact on the economy. 
 Rose goes on to state that this model can be expanded 
 to include a number of pollutants in all sectors of 
 the economy and that the methodology used to 
 adjust structural coefficients for time trend or 
 policy analysis can be used to adapt the model 
 to other regions. 
 
 
D-145 
 
 Title: 
 
 Author(s): 
 
 A Dynamic Interindustry Model for the Economic 
 Analysis of Pollution Abatement 
 
 Adam Rose 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 Working Papers on the Use of Regional Science 
 Techniques in Environmental Management 
 
 Regional Science Dissertation and Monograph Series 
 #3 pp. 47-64, Center for Urban Development Research, 
 Cornell University 
 June 1974 
 
 The effect of pollution on economic activities 
 
 A dynamic input- output model applicable to the 
 analysis of the generation of air pollution and its 
 control is presented. The model contains two 
 components. The economic component depicts the 
 role of pollution control within the industrial 
 structure. As output expands, we are able to 
 determine the repercussions on the economy of 
 an increase in demand for depollution goods. More 
 importantly, if the force of environmental regulation 
 is altered, a structural change takes place in the 
 economy. The underlying nature of this change is 
 analyzed in the environmental submodel which 
 consists of the various treatment technologies 
 operating in each industry. A set of depollution 
 coefficients links the two components. Under 
 certain simplifying assumptions, these linking 
 equations readily enable us to determine the exact 
 course of the technological change. Under more 
 general conditions, it is necessary to employ the 
 environmental submodel in linear programming 
 form for this purpose. 
 
 In its present form, the model deals only with 
 pollution generated by industry and abated by 
 gas cleaning equipment. Basic extensions to 
 include pollution emanating from households 
 (including the use of automobiles) and alternative 
 
D-146 
 
 Abstract: abatement strategies such as fuel substitution 
 
 (cont) could easily be made. Given a more comprehensive 
 
 assessment of technological change, the specification 
 of investment functions for all capital goods and the 
 projection of the time trend of final demand, the 
 basic framework could be transformed into an 
 economic -environmental forecasting model. 
 
 The applications of the model are numerous owing 
 to the versatility of input-output analysis. The 
 presentation of the model should facilitate empirical 
 research and policy work in the field of environmental 
 economics. 
 
D-147 
 
 Title: 
 
 Air Quality Improvement and Long -Run Urban Form 
 
 Author (s): 
 
 Richard E. Schuler 
 
 Source Title; 
 
 The Regional Science Association Papers 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 32 
 
 1974 
 
 Consequences of pollution in urban areas 
 
 Abstract: 
 
 Schuler places this paper in the body of literature 
 ■which addresses the second- and third-order conse- 
 quences of airborne pollutants. The paper looks at 
 distributional implications while focusing on urban 
 areas because the concentration of both airborne 
 pollutants and numbers of those affected are greatest 
 there. The author recognizes the potential for 
 complex interactions in urban regions and therefore 
 narrows the scope of the investigation to the relation- 
 ships between industrial, stationary source emissions, 
 emmisions generated by urban transportation, and 
 air pollution arising from residential heating sources. 
 The paper analyzes a situation characterized by the 
 following conditions: a closed city, nonlocal owner- 
 ship of industry, constant supply of labor, swift labor 
 relocation, government requirement of a significant 
 decrease in stationary source emissions. The method 
 used to analyze the effects of this situation requires 
 several steps. The first step hypothesizes a model 
 of consumer choice. Then the locational responses 
 of the individual to changes in the various types of 
 emissions can be examined under the assumption 
 of a competitive land market. Next, the properties 
 of a spatial equilibrium will be examined in order to 
 analyze how emissions patterns from these three 
 sources interact with all households. The effect that 
 reducing each of the three types of emissions has 
 
D-148 
 
 Abstract: upon the shape of a spatial equilibrium is then 
 
 (cont. ) analyzed and compared with market response. 
 
 Inferences are drawn about the relationships between 
 air pollution regulations and the impacts of other 
 government services. The study concludes: in the 
 long run households will relocate toward the CBD; 
 the final consequences of substituting bus transport 
 for private automobile transport would depend upon 
 whether average velocity declines more than commut- 
 ing cost per mile,- as a consequence of the movement 
 to the CBD, densities will increase and burden urban 
 services; and public revenues within the CBD will 
 increase. 
 
D-149 
 
 Title: 
 
 Author (s): 
 
 Capital Expenditures by Business for Pollution 
 Abatement: 1976 and Planned 1977 
 
 Frank W. Segel; Betsy C. Dunlap 
 
 Source Title: 
 
 Survey of Current Business, (U.S. Department of Commerce, 
 Bureau of Economic Analysis) 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 57, Number 6, pp. 13-15 
 
 1977 
 
 Pollution abatement; costs 
 
 Abstract: 
 
 Six industries account for $5. 9 billion or 79 percent of the 
 planned 1977 capital spending for pollution abatement; elec- 
 tric utilities, petroleum, chemicals, paper, steel, and 
 nonferrous metals. The article discusses expenditures made 
 by industries in 1975, 1976 and projected expenditures for 
 1977. A survey was conducted to determine if a facility 
 had closed (or planned to close) because of environmental 
 regulations. Less than one-half of 1 percent of the 
 survey respondents closed a facility in 1976; close to 80 
 percent of these facilities determined air pollution regula- 
 tions to be a contributing factor as opposed to about 10 
 percent for water pollution and 5 percent for solid 
 waste and noise. Survey data are maintained and updated 
 by BEA. 
 
D-150 
 
 Title: 
 
 Industry in the Hot Seat 
 
 Author (s): 
 
 Edgar B. Speer 
 
 Source Title: 
 
 Business and Society Review 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Number 24, pp. 22-24 
 
 1977-1978 
 
 Negative effects on industry of pollution controls 
 
 Abstract: 
 
 In this article, the author defends industries' efforts to 
 curb pollution and condemns "arbitrarily set standards 
 and timetables" by legislative bodies and government 
 agencies. Speer points out how the American steel 
 industry has now eliminated or controlled about 95 per- 
 cent of all air and water pollutants that originated with 
 steel manufacturing, and pollution control consumes about 
 one -third of the industry's total capital authorizations. 
 High costs for meeting regulations force industries to 
 close existing facilities causing shortages of basic 
 materials and capital equipment and unacceptable levels 
 of inflation. 
 
D-151 
 
 Title: 
 
 Author(s): 
 
 Industrial Invasion of Nonmetropolitan America 
 A Quarter Century of Experience 
 
 Gene F. Summers, Sharon D. Evans, Frank 
 Clemente, E. M. Black, Jon Minkoff 
 
 Source Title: 
 
 Citation: 
 Year: 19 
 Subject: 
 
 Abstract: 
 
 Praeger Publishers, New York 
 
 1976 
 
 Industrial location impacts on nonmetr,opolitan 
 areas 
 
 This book attempts to assess the validity of 
 the view that the location of industry in 
 small cities, towns, and rural areas is an 
 important tool for solving the dual problems 
 of rural poverty and urban crisis. The authors 
 draw upon case study documents for research 
 results about the impact of industrial develop- 
 ment upon 1) the population dynamics, 2) 
 the private sector, 3) the public sector, and 
 4) the quality of individual well-being in the 
 host communities. Data," from 1945 on, was 
 collected from 186 case studies on plant 
 location in nonmetropolitan communities 
 (primarily focusing on the Midwest and the 
 South) . The empirical generalizations' drawn 
 from the findings are then considered in 
 light of publicly stated policy goals. Because 
 most of the studies were done prior to public 
 concern over pollution, environmental impacts 
 are not discussed. 
 
D-152 
 
 Title: 
 
 Author (s): 
 
 Analysis of Economic Effects of Environmental Regulations 
 on the Integrated Iron and Steel Industry: Executive Summary 
 
 Temple, Barker, and Sloane, Int. 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Unpublished report, prepared for the Environmental 
 Protection Agency 
 July, 1977 
 
 Economic impact of environmental regulations 
 
 Abstract: 
 
 This report evaluates the total economic impact of 
 environmental regulations on the steel industry 
 during the next decade. The report covers the impact 
 of water pollution control and air pollution control on 
 energy, employment, the communities, balance of 
 
 trade, and steel consumers. The authors contend that 
 the rate of employment due to plant shutdowns is off- 
 set by the need for employees in pollution control 
 equipment industries and the need for employees in 
 plants that expand due to other closures. The study 
 used a Policy-Testing model of the steel industry and 
 used data from the 1974 Cost of Clean Air report. 
 
D-153 
 
 Title: 
 
 Organisation Location and Behaviour 
 
 Author(s): 
 
 Peter Toyne 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 John Wiley & Sons: New York - Toronto 
 
 1974 
 
 Industrial location and economic geography. 
 
 Abstract: 
 
 The nodal region may be regarded as a 
 system whose elements comprise the 
 visual objects of human landscape occupance: 
 the various residential, industrial, commercial, 
 agicultural, transportational and recreational 
 features which give every region its unique 
 character of physical infrastructure. However, 
 the recognition of elements in the landscape is 
 dependent on the resolution level of the 
 system. Hence, the residential elements may 
 be considered variously as the individual 
 dwelling units in their successive groupings 
 into streets, neighbourhoods and districts 
 within hamlets, villages, towns or cities. 
 
 In the human landscape system, all the inputs 
 and outputs emanate from the various decisions 
 that individuals and groups make about the 
 organisation and location of all forms of 
 economic activity. The decision-making process 
 thus constitutes the control system which 
 gives the morphological structure of human 
 landscape organisation its performance. 
 
 Considerations of scale (chapter 3) are 
 fundamentally important because they may 
 condition not only the profitability of any 
 
D-154 
 
 Abstract: enterprise but also its 
 
 (corlt. ) locational requirements. Similarly, the cost, 
 
 availability and allocation of the factors of 
 production-land (chapter 4), labour (chapter 5) 
 and capital (chapter 6)-affect the possibilities 
 of the organisation, location and profitability 
 of human activity. Moreover, since distance 
 separates all locations in geographical space, 
 considerations of transfer (chapter 7) inevitably 
 enter into the locational decision; and the 
 conditions of demand and supply (chapter 8) 
 are perhaps the major economic determinant 
 of production and consumption levels within 
 the system. 
 
 Decision makers may therefore find it 
 necessary to introduce a series of constraints 
 and incentives to their own decision-making 
 process (chapter 9) in order to counteract 
 the mechanisms of the control system that 
 they themselves have created. The evaluation 
 of each of these elements is conditioned by 
 an equally wide range of elements relating 
 to the information, preferences and 
 motivation of different decision makers. 
 
 The content of chapter 9 is an extensive review 
 of British government locational and development 
 policies and programs. However, environmental 
 policies and pollution control are omitted. 
 
D-155 
 
 Title: 
 
 Author(s): 
 
 Prepared Statement on the Economic Impact of 
 Environmental Regulations 
 
 Russell E. Train 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Hearings before the Joint Economic Committee, 
 Congress of the United States 
 
 November 22, 1974 
 
 1974 
 
 Economic impacts of environmental regulation 
 
 Abstract: 
 
 The statement supports the notion that although 
 there are cases of bad investment in pollution control, 
 regulations do not contribute to inflation and judgments 
 can only be made when costs and benefits have been 
 analyzed. Train maintains that the impact of the 
 regulations on industrial closings and employment 
 is not significant and that regulations have contributed 
 to employment in other fields. Several tables 
 indicate projected expenditures for pollution control 
 equipment by industry through 1979 and actual and 
 threatened closings by region and industry from 
 1971-1974 (Total 69 closings). 
 
D-156 
 
 Title: 
 
 Author(s): 
 
 The Urban Impacts of Federal Policies ; 
 Volume 2, Economic Development 
 
 Roger J. Vaughan 
 
 Source Title: 
 
 Rand Corporation, R-2028-KF/RC 
 
 Citation: 
 
 Volume 2, 159 pp. 
 
 Year: 
 Subject: 
 
 Abstract: 
 
 June, 1977 
 
 Economic impacts of federal programs 
 on cities 
 
 This report examines the relationship 
 between federal programs and policies 
 and urban economic development. It 
 provides both a conceptual analysis of the 
 relationships and a review of the theoretical 
 and empirical literature relevant to assessing 
 policy effects. It is one of several reports in a 
 broad study that examines federal actions in 
 relation to aspects of the urban economic, resi- 
 dential, and fiscal environment. 
 
 The purposes of the study as a whole are: (1) to 
 establish a conceptual framework for assessing 
 the effects of federal actions on urban areas, 
 (2) to synthesize the findings of existing research 
 regarding the effects of specific federal policies 
 on urban economic conditions, and (3) to evalu- 
 ate the adequacy of existing knowledge as a basis 
 for anticipating the effects of future federal de- 
 cisions on urban areas. 
 
D-157 
 
 Abstract: The organizing principle for this research 
 
 (cont. ) has been to examine individually three major 
 
 sectors of the urban economy that are 
 affected by federal actions: the private 
 business sector, the residential sector, 
 and the local public sector. This report 
 presents findings about the effects of 
 federal policies on the private business 
 sector. The findings regarding the resi- 
 dential and local public sectors are pre- 
 sented in two companion documents: 
 
 Stephen M. Barro, The Urban Impacts of 
 Federal Policies: Volume 3, Fiscal 
 Conditions, R-21 14-KF/RC. 
 Roger J. Vaughan and Mary E. Vogel, 
 The Urban Impacts of Federal Policies: 
 Volume 1, Overview, R-2206-KF/RC. 
 
 There are several limitations on the 
 research conducted for this report, First, 
 no new data are presented and no new 
 empirical analyses have been undertaken. 
 The emphasis is on synthesizing findings 
 from earlier work. Second, the scope of 
 the study limits the level of disaggregation 
 at which the influence of policies can be 
 examined. To the extent that each urban 
 area is unique, a study of federal policies 
 should examine those effects for each 
 urban area, but this report has attempted 
 to derive general conclusions, by type 
 of urban area. 
 
D-158 
 
 Title: 
 Author (s): 
 
 Prepared Statement on the Economic Impact of 
 Environmental Regulations 
 
 Aubrey J. Wagner 
 
 Source Title; 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Hearings before the Joint Economic Committee, 
 Congress of the United States 
 
 November 21, 1974 
 
 1974 
 
 Benefits and costs of environmental controls 
 
 Abstract: 
 
 The author urges lawmakers to consider the question 
 of how large an investment in environmental controls 
 is needed to protect human health and welfare and 
 whether or not the benefits are worth the cost. More 
 study is needed to assess health benefits from controls 
 and the cost effectiveness of controls. The author 
 notes: "On a new plant, choices concerning type of 
 plant and design of plant are made before construction. 
 Therefore, adherence to standards can be built into 
 the new plant at much less cost than is incurred when 
 new equipment must be added to an existing plant. . . . 
 Where a relatively few years of operating life remains 
 for a plant, and where there is no evidence of significant 
 environmental damage, expenditures to meet standards 
 set for the future may place an unjustified economic 
 burden on consumers of the plant's output." 
 
D-159 
 
 Title: 
 
 Intertemporally Optimal Urban Pollution 
 
 Author (s): 
 
 G. R. Walter 
 
 Source Title: 
 
 The Regional Science Association Papers 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 28, pp. 237-254 
 
 1971 
 
 Abatement impacts on industrial growth 
 
 Abstract: 
 
 Walter's paper is concerned with the optimal level 
 of air pollution for a city, that is, maximizing the 
 welfare of the city, including the impact of abate- 
 ment programs on industrial growth and consumer's 
 spendable income. The first part of the paper deals 
 with a model of optimal growth in an urban context 
 and conditions that govern optimal growth are derived. 
 The second section deals with the problem of 
 regulating an existing system in order to insure that 
 the optimum is obtained. The model used, while 
 allowing one to generalize about an issue of social 
 concern, is subject to significant limitations. The 
 most significant is the presumption that is possible 
 to unambiguously define the tradeoffs between 
 environmental degradation and material augmentation. 
 A closely related limitation of the present analysis 
 is failure to include all tradeoffs. Finally, the 
 assumptions that the information for optimal planning 
 is freely available and enforcement costs are 
 negligible have been criticized in the literature. 
 Allowing for these limitations, Walter's analysis 
 points out some serious limitations in current programs 
 of air quality control. The automobile contributes a 
 significant portion of total urban emissions (60 percent 
 by some measures), the present system of required 
 abatement equipment (abatement per car) has been 
 shown inadequate. In addition, the nature of the 
 problem has been shown to be intertemporal and an 
 indication is given of the role of pollution control in 
 a program of capital accumulation. 
 
D-160 
 
 Title: 
 
 Impact of Uncertainty on Location 
 
 Author(s): 
 
 Michael John Webber 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 The M, I. T. Press, Cambridge, Massachuetts 
 
 and London, England, pp.310 
 
 1972 
 
 Location theory 
 
 Abstract: 
 
 The mid-1950s witnessed the publication in 
 English of several significant theoretical 
 departures from traditional Weberian 
 locational analysis: Losch's work on 
 central place theory was translated, 
 Hagerstrand's ideas about innovation diffusion 
 became known outside Sweden, and Isard and 
 Greenhvt published reviews and syntheses of 
 location theory. At the same time, and partly 
 in response to these new ideas, novel and 
 exciting techniques were introduced, techniques 
 which have revolutionised both the concepts 
 and methods of geography. 
 
 Two avenues of innovation are being explored. 
 Firstly, probability models are being used to 
 describe town patterns and other mass human 
 interactions; secondly, locational analysis is 
 shifting away from the traditional link with 
 economics and is beginning to analyse the 
 psychological bases of decisionmaking. 
 
 In this book, an attempt is made to define 
 
 some of the ways in which uncertainty about 
 
 the effects of decisions modifies location patterns. 
 
D-161 
 
 Abstract: Theories of the location of 
 
 (cont. ) economic activity under certainty and 
 
 uncertainty are compared: the first chapter 
 sets up the problems which have to be 
 explained. Chapters 2 to 4 discuss location 
 patterns under conditions of certainty, 
 Chapter 5 examines decisionmaking under 
 uncertainty, and Chapters 6 to 9 use these 
 decisionmaking models to analyse aspects 
 of location patterns when entrepreneurs are 
 uncertain. Chapter 10 concludes the discussion 
 by comparing location patterns under certainty 
 and under uncertainty, and by attempting to 
 define the role of planning in terms of models. 
 
 Each of the major models of location theory 
 assumes rational behaviour. Some function 
 (profits) is maximised under given stated 
 conditions. In Weber's theory maximum 
 profits are held to be identical to minimum 
 costs; in the interdependence approach and 
 in Losch's theory, maximum profits are 
 effectively considered to be maximum sales. 
 Once the profit function has been defined, the 
 process of maximisation is simple and subject 
 to well-defined mathematical rules. 
 
 The normal situation in which several 
 departments of the factory are in conflict 
 about where to locate can be simulated 
 electronically. The model contains several 
 machines, each simulating one department 
 of the firm. The machines are linked. The 
 decision process then consists of each 
 machine proposing states (locations) to the 
 others, which either accept the proposals or 
 reject them and propose counter-states. 
 Satisfactory limits are fed into each machine 
 and when all machines satisfy these limits 
 the location bargaining ceases: a location 
 has been chosen. By setting the limits 
 arbitrarily high, an optimal rather than a 
 
D-162 
 
 Abstract: satisfactory state may be obtained. Thus 
 
 (cont. ) no matter how complicated are the real 
 
 world and decisions about it, an optimal 
 ex ante plan of location may be evolved. 
 
 But the enlarged idea of optimal decision- 
 making must take account of another factor. 
 Part of the process of making an optimal 
 ex ante decision involves collecting the 
 data upon which to base this decision. The 
 firm has to decide how much information 
 to collect and where to collect it from. This 
 imposes further novel elements on the theory 
 of the optimal ex ante decision. 
 
 Consider therefore a highly simplified problem. 
 An entrepreneur, located at one end of a 
 linear market, wishes to find his optimal 
 location. He knows that the profitability 
 of sites varies randomly along the line: the 
 profitabilities are approximately normally 
 distributed within the limits of =p. The cost 
 of sampling is cd, where c is a constant and 
 d is distance from the entrepreneur's home 
 site. There being no trend in profitability, 
 the firm's best first sample is its cheapest-- 
 i. e. at d = 0. A second sample is taken at 
 d = 1. From these the firm can estimate 
 the mean profitability of sites and the 
 standard deviation of profitabilities. The 
 standard error of these estimates can be 
 computed. These data tell the firm the 
 expected profitability of the next site to be 
 sampled (at d = 2). If this expected profit- 
 ability is greater than the maximum profit- 
 ability of the sites already sampled plus the 
 discounted future value of the cost of sampling 
 (2c), the firm takes this third sample. Other- 
 wise the firm locates at the best of sites 
 1 and 2. The procedure continues until the 
 expected gain from sampling is less than the 
 cost of sampling. 
 
D-163 
 
 Abstract: The firm takes an (n + l)th sample if 
 
 (cont. ) / r _ 2 -i 
 
 1 / x. exp -(x-y) 
 
 V^'.i-, L ° l J 
 
 dx - max(xj, X2, . . . , x n ) ^nc, 
 
 where x is the profitability of sites, is the 
 standard deviation of profitability, x^, X£> . . ., 
 the profitability of the 1st, 2nd, . . . , nth sites, 
 and nc is the discounted cost of sampling the 
 (n + l)th site. 
 
 The book is broadly theoretical and presents 
 data only from the studies reviewed. The 
 literature and concepts which are integrated 
 into location theory are extremely diverse 
 and provide for a complex theory covering 
 location of cities, households, and firms. 
 
D-164 
 
 Title: 
 
 The Costs of Government Regulation of Business 
 
 Author (s): 
 
 Murray L. Weidenbaum 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 Subject: 
 
 Prepared for the use of the Subcommittee on Economic 
 Growth and Stabilization of the Joint Economic Committee, 
 Congress of the United States 
 
 April, 1978 
 
 Abatement costs 
 
 Abstract: 
 
 This report examines the various costs that are incurred 
 in the process of government regulation. Government 
 regulation is described as a major growth industry 
 supported by the taxpayer . Preliminary figures for the 
 fiscal year 1979 show a total of $4.8 billion in federal 
 expenditures to operate 41 agencies which regulate 
 business. The author discusses the impacts of regulation 
 on employment, small business, consumers, etc. as well 
 as alternatives to regulation and changing attitudes towards 
 regulation. 
 
D-165 
 
 Title: 
 
 Author(s): 
 
 A Mixed -Integer Programming Model for the 
 Integration of Air Quality Policy and Land Use Planning 
 
 Elia Werczberger 
 
 Source Title: 
 
 Papers of the Regional Science Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Volume 23 
 
 1974 
 
 Pollution control costs in industrial decision models 
 
 Abstract: 
 
 Integration of air quality considerations into land-use 
 planning requires two kinds of policies: 1) air-quality 
 management, i. e. , control of the location and quantity of 
 pollutant emissions to ensure maintenance of air-quality 
 standards; and 2) locational policies which prevent pollu- 
 tion-sensitive activities such as housing or hospitals from 
 locating in high-pollution areas. 
 
 The optimal allocation of resources is constrained by the 
 various air-quality objectives applicable to any subarea. 
 To simplify, assume that only one pollutant is relevant to 
 the air -quality policy. The air -quality objective for each 
 activity is expressed as: 
 
 2 << e i« ™.r)Xik.a ~ t^ir « (b, - q r Y (for all i, f) 
 
 where: 
 X 
 
 jksa 
 
 e. 
 
 m 
 
 sr 
 
 number of units of activity j. 
 
 the average emission rate of activity j 
 when technology a is used; 
 
 the contribution to the average pollutant 
 concentration in area r which results 
 from a pollution source of unit strength 
 located in s; 
 
D-166 
 
 Abstract M = a very large number; 
 
 (continued): 
 
 b. = the air quality objective; this is expressed 
 
 as the upper limit of the mean pollutant 
 concentration which must be maintained in 
 any area in which a unit of the ith activity is 
 located, and this objective is set low enough 
 that pollution costs incurred by activity i 
 can be neglected; 
 
 q = background pollution in area r resulting 
 
 from sources which are outside the juris- 
 diction of the planning agency. 
 
 The net value of a shelter unit is then given by c^ ra 
 which equals the present value of the difference between 
 the rent activity that i is willing to pay for a shelter unit 
 of type k in r, when it expects to use technology a, and the 
 cost of providing the shelter unit. 
 
 The objective function is then: 
 
 Max L= 2 c ikra X ikra . 
 
 i,k,r,a 
 
D-167 
 
 Title: 
 
 Regional Growth and Industrial Location 
 
 Author(s): 
 
 Leonard F. Wheat 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Lexington Books, Lexington, Massachusetts 
 
 1973 
 
 Regional growth factors 
 
 Abstract: 
 
 This is a study of the forces influencing regional 
 growth in the U.S. , and seeks to identify and 
 evaluate the relative importance of factors that 
 cause one region to grow faster than another. 
 States are basic units examined. The study 
 uses manufacturing employment to measure 
 growth changes in manufacturing. The study 
 outlines recent empirical studies of regional 
 growth, absolute growth, per capita growth and 
 percentage growth. 
 
 The locational influences examined in this study 
 are (1) markets, (2) climate, (3) labor, (4) thres' 
 holds, or foundation levels of development, 
 (5) resources, (6) the urban attraction, and 
 (7) agglomeration. Wheat asserts that the 
 findings leave no doubt that markets and 
 climate are the leading influences affecting 
 manufacturing growth in the U.S. 
 
 Wheat concludes that the study findings have 
 definite policy implications for governmental 
 programs designed to assist distressed areas, 
 and these agencies should try to bolster the 
 assests of the cities in these areas in order to 
 influence plant locations. 
 
Title: 
 
 Author(s): 
 
 D-168 
 
 Government Regulation, America's Number One 
 Growth Industry- 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Notes from the Joint Economic Committee, United 
 States Congress Newsletter 
 
 Volume IV, Number 11, May 16, 1978 
 
 1978 
 
 Cost and effect of regulations on small business 
 
 Abstract: 
 
 This newsletter reviews the examination currentlv being 
 undertaken by Congress of the high cost of excessive 
 government regulation and its negative effects on 
 small businesses. The article details examples of 
 the costs of and conflicts between regulations arid 
 demonstrates the effects of the laws on consumers, 
 taxpayers, motorists, businessmen, homeowners, 
 and investors using material taken from a study by 
 Murray Weidenbaum for the Subcommittee on Economic 
 Growth and Stabilization. * 
 
 *An abstract of this report is included elsewhere in 
 this bibliography. 
 
D-169 
 
 Title: 
 
 Status Report: Other Environmental Impacts 
 
 Author (s): 
 
 Source Title: 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 The Status of Environmental Economics: A Report 
 prepared for the Committee on Public Works, 
 U. S. Senate 
 
 June, 1975 
 
 Impacts of environmental programs 
 
 Abstract: 
 
 This section is a summary of direct and indirect 
 positive impacts of environmental programs, 
 exploring employment generation materials and 
 resource conservation and new products. Estimates 
 were obtained through manpower studies in state, 
 federal and industry reports. The article states 
 that with capital investments and operation and 
 maintenance expenditures, the manufacturing, 
 installation and operating of air pollution controls 
 will become a major source of jobs during 1973- 
 1982. 
 
Title: 
 
 Author(s): 
 
 D-170 
 
 U. S. Industry Needs $24. 67 Billion to Bring Its 
 Existing Facilities Into Compliance 
 
 Source Title: 
 
 Journal of the Air Pollution Control Association 
 
 Citation: 
 
 Year: 
 
 Subject: 
 
 Abstract: 
 
 July 1974, Volume 24, Number 7, p. 682 
 1974 
 
 Results of McGraw Hill's seventh annual survey of 
 pollution control expenditures 
 
 Summary results of McGraw-Hill Publication Company's 
 seventh annual survey of pollution control expenditures 
 are presented. Actual spending for 1973 is reported, 
 as well as planned expenditures for 1974 and 1977. 
 Separate figures are given for air and water pollution 
 control expenditures for 26 industrial and commercial 
 sectors. 
 
D-171 
 Related Newspaper and Magazine Articles 
 
 "Study Cites Firms' 'Flight' to 3rd World to Avoid Safeguards" 
 
 Helen Dewar 
 
 The Washington Post. Friday, June 30, 1978 
 
 The article discusses the study made by Barry I. Castleman which reports 
 that many industries that produce hazardous products or pollutant emissions 
 are moving these industries to third world countries to avoid the higher 
 costs of meeting worker and environmental protection standards set both 
 by the U. S. and other highly industrialized nations. Rather than paying 
 for the high cost of installing expensive pollution abatement equipment, 
 the industries move to less developed countries where protective rules 
 are minimal and standard of living levels make the area vulnerable to 
 exploitation. Because of bans on certain products, costs imposed on 
 regulation equipment, and preferential tariff treatment given to certain 
 companies, these industries can maintain a competitive edge on products 
 exported and sold to the U.S. Castleman concludes that the U.S. could 
 control this situation by revoking tax credits for offending firms, banning 
 imports of the products or raising tariffs that would eliminate the cost 
 savings the industries now have. 
 
 "U.S. Sets Rules on Pollution Controls" 
 
 Charles Mohr 
 
 The New York Times , Wednesday, June 21, 1978 
 
 This article concerns the new governmental regulations that will affect 
 pollution abatement of discharges into city sewer systems. This ruling 
 will impose new investment and operating costs on businesses and could 
 force the closing of small or old businesses that lack capital or space for 
 installation of control equipment. The pretreatment plans that will result 
 in both higher rates of usable water and sludge outputs are expected to 
 offset the cost of pollution controls. Cost cannot be precisely estimated 
 until the detailed standards for industrial categories are formulated. 
 
 "The Capital Eye" 
 Fred Popper 
 Practicing Planner , June, 1978 
 
 The article concerns President Carter's urban policy message of March 
 27, 1978. Included in the release is a proposal specifically aimed at 
 planning issues. The proposal is for an air quality planning grant 
 
 program which will provide technical assistance to localities in managing 
 conflicts between air pollution and economic development goals. 
 
D-172 
 
 "Reserve Mining Company to Remain in Minnesota" 
 The New York Times , Saturday July 8, 1978 
 
 The article concerns Reserve Mining Company, one of the major componants in 
 the economy of northeastern Minnesota. Compliance with state and 
 federal environmental laws will cost the company $370 million for pollution 
 controls. The emissions from Reserve have been water waste into 
 Lake Superior and microscopic aebestos fibers released into the air. 
 There had been concern that Reserve would not be able to meet the 
 standards and would shut down, causing 3,000 workers to be laid off. 
 
 "The Regulation Mess" 
 
 Newsweek, June 12, 1978 
 
 David Pauly, Jane Whitmore, James Jones, Pamela Ellis Simons, Bureau Reports 
 
 This article discusses efforts being made by the Carter Administration, 
 Congress, and businesses to reduce bureaucracy and inconsistencies of 
 governmental regulatory agencies. Problems such as cost factors, 
 whether to keep forcing companies to obey rules or offer incentives, and 
 whether to specify how to meet goals or allow companies to arrive at their 
 own solutions f are discussed. According to companies, environmental 
 impact statements are unclear, and the White House is calling for shorter, 
 clearer statements in the future. There are moves being made that would 
 
 allow industry a chance to react to regulations before they are adopted. The 
 article also discusses the growing opposition to the EPA's emission offset 
 policy that is currently in effect. 
 
 "The Benefits of Regulation" 
 
 Economic Scene /Carolyn Shaw Bell 
 
 The New York Times, Tuesday, July 25, 1978 
 
 Bell discusses how the cost of government regulations concerning pollution 
 control has been viewed as being inflationary. Regulations have been 
 estimated to have raised the Consumer Price Index and to have reduced 
 productivity growth. Bell argues that regulation should be recognized 
 as a service, producing measurable economic benefits like those of 
 other agencies. She goes on to say that if industrial output were properly 
 calculated to include the benefits of increased safety and better health 
 for employees that vigorous regulations would provide, both economic 
 indicators and economic behavior would change, reducing the inflation 
 spiral and leading to greater output. 
 
D-173 
 
 "Bottle Maker Cuts Costs, Pollution with Old Glass" 
 
 Larry Kramer 
 
 The Washington Post , Sunday, July 2, 1978 
 
 The article concerns the efforts of the Glass Containers Corporation of 
 Dayville, Connecticut to rethink its production methods in order to meet 
 environmental air quality standards. By using recycled glass the plant 
 is more efficient, meets air quality standards, and does not have to put in 
 costly abatement equipment. In addition to a new high in employment at 
 the plant, more than $1.4 million has been poured into the local 
 economy and at the same time that plant emissions have been lowered, 
 the search for recycled glass has significantly reduced a large part of 
 New England's litter problem. 
 
 "EPA Approves Auto Plants under Emission Offset Policy" 
 
 Environment Reporter - Current Developments 
 
 Volume 8, p. 220 
 
 May 1, 1977 - April, 1978 
 
 This article concerns the opening of two auto plants. The GM plant in 
 Oaklahoma City received approval from the EPA after several oil companies 
 in the area were persuaded by the state and local governments to provide 
 offsets by reducing the aggregate emissions of hydrocarbons by 5,280 tons 
 per year. The GM plant will add more than 3,000 tons per year. The 
 Volkswagon plant in New Stanton, Pennsylvania received approval after 
 the state agreed to use low polluting asphalt in road maintenance to offset 
 the estimated 900 tons of hydrocarbon emissions expected from the new 
 plant. The asphalt will reduce emissions by 1,025 tons per year. 
 

 
D-175 
 
 INDEX 
 
 1. Anderson, F. , et. al. ; Environmental Improvement Through Eco- 
 nomic Incentives , Resources for the Future: Washington, D. C. ; 
 1978. 
 
 2. Backman, Jules; "The Steel Industry: Problems and Solutions"; 
 Challenge, July-August, 1978. 
 
 3. Barro, Stephen M; "The Urban Impact of Federal Policies: Their 
 Direct and Indirect Effects on the Local Public Sector"; Small 
 Cities in Transition: The Dyanmics of Growth and Decline; 
 Ballinger Publishing Company: Cambridge, Mass. ; 1977. 
 
 4. Birch, David; "Statement Prepared for the U.S. House of Repre- 
 sentatives Select Committee on Population"; Hearings, June 6, 
 1978. 
 
 5. Blair, Roger D. ; "Problems of Pollution Standards: The Clean 
 Air Act of 1970"; Land Economics ; August, 197*3, p. 260. 
 
 6. Bower, Blair T. , ed. ; Regional Residual-Environmental Quality 
 Management Modeling ; Resources for the Future, Washington, D.C., 
 1978. 
 
 7. Bureau of the Census, "Pollution Abatement Costs and Ex- 
 penditures, 1976-MA-200 (76)-2"; Current Industrial Report ; U.S. 
 Government Printing Office: Washington, D. C. ; 1977. 
 
 8. Chao, R. , and Dossani, N. G. ; "Macroeconomic and Industry 
 Impacts of Water Pollution Abatement Legislation"; Paper pre- 
 sented at the Western Economic Association Conference; 1976. 
 
 9. Chase Econometric Associates, Inc. ; "The Macroeconomic Impacts 
 of Federal Pollution Control Programs"; The Status of Environ- 
 mental Economics: A Report Prepared for the Committee on Public 
 Works, U.S. Senate; June, 1975. 
 
 10. Ciriacy-Wantrup, S. V. ; "The Economics of Environmental Policy"; 
 Land Economics, February, 1971, p. 36. 
 
 11. Collins, Robert A. ; "The Distributive Effects of Public Law 92-500"; 
 Journal of Environmental Economics and Management , Volume 4, 
 Number 4, 1977, pp. 345-354. 
 
D-176 
 
 INDEX (continued) 
 
 12. Comolli, Paul M. ; "Pollution Control in a Simplified General- 
 Equilibrium Model with Production Externalities"; Papers of 
 the Regional Science Association, Volume 23, 1974. 
 
 13. Comolli, Paul M. ; "Pollution Control in a Simplified General- 
 Equilibrium Model with Production Externalities"; Journal of 
 Environmental Economics and Management, Volume 4, Number 4, 
 1977, pp. 289-304. 
 
 14. Council on Environmental Quality, Executive Office of the Presi- 
 dent; "The Economic Impact of Environmental Programs"; The 
 Status of Environmental Economics: A Report Prepared for the 
 Committee on Public Works, U.S. Senate, June 1975. 
 
 15. Council on Environmental Quality; "The Economic Impact of 
 Environmental Programs"; Hearings before the Joint Economic 
 Committee, Congress of the United States, November 22, 1974. 
 
 16. Davis, R. M. , et. al. ; "Development of an Economic Environmental 
 Trade- Off Model for Industrial Land-Use Planning"; The Review of 
 Regional Studies, Volume 4, Number 1, 1974, pp. 11-26. 
 
 17. Dolde, W. , et. al. ; "Dynamic Aspects of Air Quality Control 
 Costs"; Journal of Environment Economics and Management, 
 Volume 4, Number4, 1977, pp. 313-334. 
 
 18. Downing, Paul B. , and Brady, Gordon; "Implementing the Clean 
 Air Act: A Case Study of Oxidant Control in Los Angeles"; Natural 
 Resources Journal, Volume 18, Number 2, April, 1978. 
 
 19. Engdahl, R. B. ; "A Critical Review of Regulations for the Control 
 of Sulfur Oxide Emissions"; Journal of the Air Pollution Control 
 Association, Volume 23, Number 5, May, 1973, p. 364. 
 
 20. Environmental Protection Agency, Compilation of Air Pollutant 
 Emission Factors (Second Edition); Office of Air and Waste 
 Management Research: Triangle Park, North Carolina; August, 
 1977. 
 
 21. Environmental Protection Agency; ,r EPA Economic Dislocation Early 
 Warning System Quarterly Summary Report"; American Statistics 
 Index 1977, 4th Annual Supplement, Congressional Information 
 Service: Washington, D. C. , 1978. 
 
 
D-177 
 
 INDEX (continued) 
 
 22. Environmental Protection Agency; "1973 National Emissions 
 Report, National Emissions Data System (NEDS) of the 
 Aerometric and Emissions Reporting System"; American Statis- 
 tics Index 1977, 4th Annual Supplement; Congressional Informa- 
 tion Service: Washington, D. C. , 1978. 
 
 23. Environmental Research and Technology, Inc. ; "Impact of the 
 EPA Class II Significant Deterioration Regulations on Multiple 
 Industries: Size and Siting Limitations"; Prepared for Environ- 
 mental Policy Office, Federal Energy Administration, Washington, 
 D. C. , Unpublished report, September 1977. 
 
 24. Feldstein, Milton; "A Critical Review of Regulations for the Con- 
 trol of Hydrocarbon Emissions from Stationary Sources"; Journal 
 of the Air Pollution Control Association, Volume 24, Number 5, 
 May 1974, p. 469. 
 
 25. Forster, Bruce A. ; "Pollution Control in a Two-Sector Dynamic 
 General Equilibrium Model"; Journal of Environmental Economics 
 and Management, Volume 4, Number 4, 1977, pp. 305-312. 
 
 26. Fortune, Peter; "The Impact of the Federal Water Pollution Con- 
 trol Act of 1972"; unpublished report, Data Resources, Inc., 
 1975. 
 
 27. Fowler, George; "How the Clean Air Law Can Choke Industry"; 
 Nation's Business , Volume 66, Number 7, 1978, pp. 29-36. 
 
 28. Freund, James; "Plant Closures and the Regional Consequences of 
 Water Pollution Control"; Unpublished report, 1975. 
 
 29. Ginn, J. R. , et. al. ; "The Economic Impact of the Federal Water 
 Pollution Control Act, Amendments of 1972 on the Metal Finishing 
 Industry"; National Bureau of Economic Research, Inc. , for the 
 National Commission on Water Quality, unpublished report, 1975. 
 
 30. Governor's Science Advisory Committee, The; "Criteria for 
 Power Plant Siting in Pennsylvania"; Panel on Criteria for Power 
 Plant Siting, Executive Summary Report for Governor Milton J. 
 Shapp, 1976. 
 
 31. Granessi, et. al. ; "The Distributional Implications of National Air 
 Pollution Damage Estimates"; Resources for the Future, Reprint 
 150, 1977. 
 
D-178 
 
 INDEX (continued) 
 
 32. Guntermann, Karl L. ; "Air Pollution Control in the Secondary 
 Aluminum Industry"; Land Economics, August 1976, p. 285. 
 
 33. Harris, Curtis C. , Jr. , and Hopkins, Frank E. ; Locational 
 Analysis; D. C. Heath and Company; 1972. 
 
 34. Hekman, John S. ; "An Analysis of the Changing Location of Iron 
 and Steel Production in the Twentieth Century", The American 
 Economic Review, Volume 68, Number 1, March, 1978, p. 123.. 
 
 35. Hellman, Darge A. , et. al. ; State Financial Incentives to Industry; 
 Lexington Books: Lexington, Massachusetts, 1976. 
 
 36. Irwin, W. A., and R. A. Liroff; "Economic Disincentives for 
 Pollution Control: Legal, Political and Administrative Dimen- 
 sions"; Socioeconomic Environmental Studies Series, Office of 
 Research and Development, Environmental Protection Agency, 1974. 
 
 37. Isard, Walter; "Regional Science and Research on Environmental 
 Management"; Working Papers on the Use of Regional Science 
 Techniques in Environmental Management, Regional Science 
 Dissertation and Monograph Series #3, Center for Urban Develop- 
 ment Research, Cornell University, June, 1974, pp. 1-46. 
 
 38. Isard, Walter, and Liossatos, Panagis; "Some Simple Air Pollu- 
 tion and Urban-Regional Growth Models"; Papers of the Regional* 
 Science Association, Volume 29, 1972. 
 
 39. Isard, Walter, and Parcels, Larry; "A Locational Analysis for the 
 Petrochemical Industry"; Unpublished report, December, 1977. 
 
 40. Isard, Walter, and Parcels, Larry; "A Locational Analysis for 
 the Aluminum Industry"; Unpublished report, December, 1977. 
 
 41. Isard, Walter, and Parcels, Larry; "Regional Pattern of Iron 
 
 and Steel Production, 1985 and 2000"; Unpublished Report, Decem- 
 ber, 1977. 
 
 42. Kamien, M. I. , and Schwartz, N. L. ; "Disaggregated Intertemporal 
 Models with an Exhaustible Resource and Technical Advance"; 
 Journal of Environmental Economics and Management, Volume 4, 
 Number 4, 1977, pp. 271-288. 
 
D-179 
 
 INDEX (continued) 
 
 43. Kane, Edward R. ; "Prepared Statement on the Economic Impact of 
 Environmental Regulations"; Hearings before the Joint Economic 
 Committee, Congress of the United States, November 21, 1974. 
 
 44. Kohn, Robert; "Industrial Location and Air Pollution Abatement"; 
 Journal of Regional Science, Volume 14, Number 1, 1974. 
 
 45. Lakshmanan, T. R. , and Lo, Fu-chen; "A Regional Economic 
 Model for the Assessment of the Effects of Air Pollution Abatement"; 
 Presented at the Regional Science Association Fourth British 
 Section Meeting, September, 1971. 
 
 46. Leintner, Keith R. , and Emerson, M. Jarvin; "Effects of State 
 Pollution Control Programs on Industrial Location"; unpublished 
 report, 1978. 
 
 47. Lundberg, Constance K. ; "Industrial Siting and the Clean Air 
 Act"; Presented at the Environmental Law Institute: Conference 
 on Energy and Public Lands, Utah, August 23-26, 1976. 
 
 48. Maler, Karl-Goran; " A Note on the Use of Property Values in 
 Estimating Marginal Willingness to Pay for Environmental Quality"; 
 Journal of Environmental Economics and Management, Volume 4, 
 Number 4, 1977, pp. 355-369. 
 
 49. Mathur, Vijay K. , and Yamada, Hiroyuki; "An Economic Theory 
 of Pollution Control"; The Regional Science Association Papers , 
 Volume 28, 1971, pp. 223-235. 
 
 50. McMillan, T. E. , Jr. ; "Why Manufacturers Choose Plant Location 
 versus Determinants of Plant Locations"; Land Economics , Vol- 
 ume XII, Number 3, 1975, pp. 239-244. 
 
 51. Meyer, John R. , and Leone, Robert A. ; "The New England States 
 and Their Economic Future: Some Implications of a Changing 
 Industrial Environment"; Sessions: Problems of Regional Economic 
 Development, Proceedings , American Economic Association, 
 May, 1978, pp. 110-115. 
 
 52. Miernyk, W. H. , and Sears, J. T. ; "Environmental Management and 
 Regional Economic Development"; Air Pollution Abatement and 
 Regional Economic Development , Lexington Books, D. C. Heath 
 and Company: Lexington, Massachusetts, 1974. 
 
D-180 
 
 INDEX (continued) 
 
 53. Moody, Carlisle E. , Jr. and Humphrey, Craig; "Air Quality, 
 Environment and Metropolitan Community Structure"; The Review 
 of Regional Studies , Volume III, Number 3, pp. 92-101, 1974. 
 
 54. Morgenstern, P. , et. al. ; "Modeling Analysis of Power Plants 
 for Compliance Extensions in 41 Air Quality Control Regions"; 
 Journal of the Air Pollution Control Association , Volume 25, 
 Number 3, 1975, p. 287. 
 
 55. National Association of Manufacturers, The; "Statement on the 
 Economic Impact of Environmental Regulations"; Hearings before 
 the Joint Economic Committee, Congress of the United States, 
 November 21-22, 1974. 
 
 56. National Canners Association, The (Roger Huibregtse); "Comments 
 on the Economic Impact of Environmental Regulations"; Hearings 
 before the Joint Economic Committee, Congress of the United 
 States, November 21-22, 1974. 
 
 57. Neutze, G. M. ; "Major Determinant of Location Patterns"; Land 
 Economics , Volume XLII*, Number 2, May, 1967. 
 
 58. Nevers, Noel de; "Air Pollution Control Philosophies"; Journal of 
 the Air Pollution Control Association - Reprinted in the Senate 
 Congressional Record, February 25, 1977. 
 
 59. Nijkamp, P. , and Paelinck, J. H. P. ; "An Interregional Model of 
 Environmental Choice"; Papers of the Regional Science Associa- 
 tion, Volume 31, 1973. 
 
 60. Ogden, Delbert C. ; "Economic Analysis of Air Pollution"; Land 
 Economics, May 1966, p. 137. 
 
 61. Patrick, Clifford H. ; "Pollution, Production and Compensation"; 
 The Review of Regional Studies , Volume 4, Supplement, 1974, 
 pp. 60-66. 
 
 62. Petersen, John and Galper, Harvey; "Financing State Capital Outlays"; 
 State Government, Spring Issue, 1970, pp. 124-127. 
 
 b3. Petersen, John, and Kummerfeld, Donald; "Are Taxable Municipal 
 Bonds in Your Future?"; Nation's Cities, Volume III, Number 7, 
 July, 1973. 
 
 
D-181 
 INDEX (continued) 
 
 64. Peterson, E. W. ; "Interaction of Population Growth, Industrial 
 Growth, and Pollution Control"; Journal of the Air Pollution Con - 
 trol Association, Volume 23, Number 1, January 1973, p. 11. 
 
 65. Power Systems Division, United Technologies Corporation; 
 "National Benefits Associated with Commercial Application of 
 Fuel Cell Powerplants"; prepared for the Energy Research 
 and Development Administration, February 27, 1976. 
 
 66. Putman, Stephen H. ; "Intra-Urban Industrial Location Model 
 Design and Implementation"; Paper presented at the Thirteenth 
 U.S. Annual Meeting, Regional Science Association, St. Louis, 
 Missouri, 1966. 
 
 67. Revelle, Charles, et. al. ; "An Analysis of Private and Public 
 Sector Location Models"; Management Science , Volume 16, 
 Number 11, July 1970, pp. 692-707. 
 
 68. Rose, Adam; "A Simulation Model for the Economic Assessment 
 of Alternative Air Pollution Regulations"; Journal of Regional 
 Science, Volume 17, Number 3, 1977. 
 
 69. ; "A Dynamic Interindustry Model for the Economic Analysis 
 
 of Pollution Abatement"; Working papers on the Use of Regional 
 Science Techniques in Environmental Management; Regional 
 Science Dissertation and Monograph Series #3, Center for Urban 
 Development Research, Cornell University, June, 1974, pp. 47-64. 
 
 70. Schuler, Richard E. ; "Air Quality Improvement and Long-Run 
 Urban Form"; The Regional Science Association Papers, Volume 
 32, 1974. 
 
 71. Segel, Frank W. , and Dunlap, Betsy; "Capital Expenditures 
 by Business for Pollution Abatement: 1976 and Planned 1977"; 
 Survey of Current Business , Volume 57, Number 6, 1977 (U.S. 
 
 Department of Commerce, Bureau of Economic Analysis), pp. 13-15. 
 
 72. Speer, Edgar B. ; "Industry in the Hot Seat"; Business and Society 
 Review , Number 24, 1977-1978, pp. 22-24. 
 
 73. Summers, Gene, et. al. ; Industrial Invasion Q f Nonmetropolitan 
 America; A Quarter Century of Experience; Praeger Publishers: 
 New York, 1976. 
 
D-182 
 
 INDEX (continued) 
 
 74. Temple, Barker, and Sloane, Inc. ; "Analysis of Economic Effects 
 of Environmental Regulations on the Integrated Iron and Steel 
 Industry: Executive Summary"; Unpublished report prepared for 
 the Environmental Protection Agency, July, 1977. 
 
 75. Toyne, Peter; Organisation Location and Behaviour; John Wiley 
 and Sons: New York - Toronto, 1974. 
 
 76. Train, Russell E. ; "Prepared Statement on the Economic Impact 
 of Environmental Regulations"; Hearings before the Joint Eco- 
 nomic Committee, Congress of the United States, November 24, 
 1974. 
 
 77. Vaughan, Roger J. ; The Urban Impacts of Federal Policies: 
 Volume 2, Economic Development ; Rand Corporation, R-2028- 
 KF/RC; June 1977. 
 
 ^8. Wagner, Aubrey J. ; "Prepared Statement on the Economic Impact 
 of Environmental Regulations"; Hearings before the Joint Eco- 
 nomic Committee, Congress of the United States, November 21, 
 1974. 
 
 79. Walter, G. R. ; "Intertemporally Optimal Urban Pollution"; The 
 Regional Science Association Papers , Volume 28, 1971, pp. 237-254. 
 
 80. Webber, Michael John; Impact of Uncertainty on Location; The 
 M. I. T. Press: Cambridge, Massachusetts, 1972, p. 310. 
 
 81. Weidenbaum, Murray L. ; "The Costs of Government Regulation 
 of Business"; prepared for the use of the .Subcommittee on Eco- 
 nomic Growth and Stabilization of the Joint Economic Committee, 
 Congress of the United States, April, 1978. 
 
 82. Werczberger, Elia; "A Mixed-Integer Programming Model for the 
 Integration of Air Quality Policy and Land Use Planning"; Papers 
 of the Regional Science Association, Volume 23, 1974. 
 
 83. Wheat, Leonard F. ; Regional Growth and Industrial Location; 
 Lexington Books: Lexington, Mass. , 1973. 
 
 84. ''Government Regulation, America's Number One Growth Industry"; 
 Notes from the Joint Economic Committee, United States Congress, 
 Volume IV, Number 11, May 16, 1978. 
 
 
D-183 
 
 INDEX (continued) 
 
 85. "Status Report: Other Environmental Impacts"; The Status of 
 Environmental Economics: A Report prepared for the Committee 
 on Public Works, United States Senate; June, 1975. 
 
 86. "U.S. Industry Needs $24.67 Billion to Bring Its Existing Facilities 
 Into Compliance"; Journal of the Air Pollution Control Association ; 
 Volume 24, Number 7, July 1974, p. 682. 
 
 87. Related Newspaper and Magazine Articles 
 
 "Study Cites Firms' 'Flight' to 3rd World to Avoid Safeguards" 
 Helen Dewar, The Washington Post, Friday, June 30, 1978. 
 
 "U.S. Sets Rules on Pollution Controls"; Charles Mohr, The New 
 York Times, Wednesday, June 21, 1978. 
 
 "The Capital Eye"; Fred Popper, Practicing Planner , June, 1978. 
 
 "Reserve Mining Company to Remain in Minnesota", The New York 
 Times, Saturday, July 8, 1978. 
 
 "The Regulation Mess"; Newsweek, June 12, 1978, David Pauly, 
 et. al. 
 
 "The Benefits of Regulation:; Economic Scene/Carolyn Shaw Bell, 
 The New York Times , Tuesday, July 25, 1978. 
 
 "Bottle Maker Cuts Costs, Pollution with Old Glass", Larry Kramer, 
 The Washington Post , Sunday, July 2, 1978. 
 
 "EPA Approves Auto Plants under Emission Offsets Policy" 
 Environment Reporter - Current Developments , Volume 8, 
 May 1, 1977 - April, 1978. 
 
 ftU.S. GOVERNMENT PRINTING OFFICE: 1979 O — 296-189 
 


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