Title

Estimating the Hidden Costs of Environmental Regulation

Date of Original Version

4-2001

Type

Article

Abstract or Description

This paper examines the extent to which accounting systems separately identify all the costs of environmental regulation. We estimate the relation between the “visible” costs of regulatory compliance (costs that firms' accounting systems correctly classify as “environmental”) and “hidden” environmental costs embedded in other accounts. We use plant‐level data from 55 steel mills to estimate hidden costs, and we follow up with structured interviews of corporate‐level managers and plant‐level accountants. Empirical results show that a $1 increase in the visible cost of environmental regulation is associated with an increase in total cost (at the margin) of $10–$11, of which $9–$10 are hidden in other accounts. The findings suggest that inappropriate identification and accumulation of the costs of environmental compliance are likely to distort costs in firms subject to environmental regulation.

DOI

10.2308/accr.2001.76.2.171

 

Published In

The Accounting Review, 76, 2, 171-198.