Modeling compliance to environmental regulation: Evidence from manufacturing industries

We examine the demand for pollution control equipment from 1973 to 1991 by those U.S. manufacturing industries that are highly sensitive to environmental regulation. We also consider the political determinants of the U.S. Environmental Protection Agency (EPA) enforcement budget. Because, as we demonstrate, the EPA enforcement budget is an important determinant of the industries' investment in pollution control equipment, we are able to establish a relationship between political factors and economic decision making on the part of the industries. Thus, our analysis demonstrates that the demand for pollution control equipment is sensitive to both economic and political factors.