Research Projects

In this report, a methodology is developed to assess the impact that the California Environmental Protection Agency proposed regulations will have on the ability of California businesses to compete. We propose that the California Environmental Protection Agency consult with economists and engineers in order to estimate the relevant additional costs of meeting the proposed regulations. Such costs will differ depending on whether or not (a) the regulated product has substitutes or (b) the regulated industry is competitive.

The ability of California businesses to compete, following a regulation, can be assessed by examining the effect of regulation on (a) labor or total factor productivity measures, (b) rate of return on investment (i.e., financial health) for California firms, (c) price and quantity of a good that is regulated as well as jobs lost, and (d) the whole economy using large models called computable general equilibrium models. Except the largest of proposed regulatory changes, which may necessitate the use of a computable general equilibrium model, a combination of the first three methods may be all that is required to carry out a good evaluation.