Frameworks for Analyzing the Effects of Risk and Environmental Regulations on Productivity

Abstract

The existence of a negative relationship between the regulatory burden and capital investments, and consequently productivity,is not controversial. A conventional model of this type is developed in Section I. If, however, these regulations change over time and firms' investment decisions are irreversible, there will be additional distortions, as shown in Section II. In Section III, I show that uncertainty regarding these regulatory changes exacerbates the adverse productivity effects even for risk-neutral firms.