Estimating the effects of regulation when treated and control firms compete: a new method with application to the EU ETS

Barrows, Geoffrey, Calel, Raphael, Jégard, Martin and Ollivier, Hélène (2023) Estimating the effects of regulation when treated and control firms compete: a new method with application to the EU ETS. CCCEP Working Paper (420). Centre for Climate Change Economics and Policy, London, UK.

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Abstract

This paper presents a method for estimating treatment effects of regulations when treated and control firms compete on the output market. We develop a GMM estimator that recovers reduced-form parameters consistent with a model of differentiated product markets with multi-plant firms, and use these estimates to evaluate counterfactual revenues and emissions. Our procedure recovers unbiased estimates of treatment effects in Monte Carlo experiments, while difference-in-differences estimators and other popular methods do not. In an application, we find that the European carbon market reduced emissions at regulated plants without undermining revenues of regulated firms, relative to an unregulated counterfactual.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.cccep.ac.uk/
Additional Information:	© 2023 The Authors
Divisions:	Grantham Research Institute
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor G Geography. Anthropology. Recreation > GE Environmental Sciences
JEL classification:	Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General L - Industrial Organization > L5 - Regulation and Industrial Policy > L50 - General
Date Deposited:	25 May 2023 10:09
Last Modified:	16 Sep 2023 00:03
URI:	http://eprints.lse.ac.uk/id/eprint/119259

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