Essays on the effect of environmental policy on firm behavior and competitiveness

This dissertation consists of three self-contained essays that address the issue of how different approaches to achieving environmental objectives affect competitiveness and firm behavior. The first essay, The Impact of Environmental Regulation on Innovation: A Panel Data Study, examines whether the standard command and control type regulations provide incentives to innovate. It employs a fixed effects panel data model to study how environmental patent applications by 146 U.S. manufacturing industries responded, from 1983 to 1992, to stricter environmental regulation. The statistical results provide some support for the hypothesis that stricter environmental regulation can induce environmental innovation. However, it does not follow that these innovations are also more profitable for every firm in every industry. As always, there are some winners and some losers.; The second essay, The Impact of Voluntary Environmental Program Participation on Firm Market Value: A Switching Regression Model, addresses the growing interest in experimental, flexible, voluntary environmental programs. Proponents of such programs claim that they can achieve environmental objectives and generate private benefits to firms. This paper employs a switching regression model with endogenous switching to estimate selectivity-corrected returns to participation in the EPA's 33/50 Program. We find that an average participant is rewarded by a 0.37 percent increase in market value relative to an otherwise similar firm.; The third essay, The Impact of Oil Spill Announcements on Firm Reputation: An Event Study, explores the role of information in deterring firms from being bad environmental actors. Data on 54 oil spill events between 1985 through 1995 is collected and the Event Study methodology is used to estimate the responsible firm's abnormal returns in the period following each oil spill announcement. We find that the market value of potentially responsible firms decreased by 0.64% or {dollar}290 million, on average. Penalties, clean-up costs, and natural resource damage awards could not adequately explain the large losses in market value. The unexplained residuals are interpreted as being reputational penalties imposed by the stock market on the polluting firms.