The Impact of Environmental Regulation on the Structure of the US Hog Industry

Abstract: This paper develops a comparative statics model of long-run industry equilibrium in the presence of size-based environmental regulation stringency and applies the model to the United States hog industry. The economic model shows that when size-based environmental stringency is also size-biased, large farms downsize, expand, or do neither depending on how environmental stringency shifts their marginal production cost relative to their average cost. Empirical testing using data from the top-ten hog producing states suggests that environmental regulation stringency has limited impact on small farms and leads to a reduction in the number of large farms. We cannot reject positive size bias at the farm level due to the stringency of environmental regulation