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

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  • Barrows, Geoffrey
  • Calel, Raphael
  • Jégard, Martin
  • Ollivier, Hélène

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.

Suggested Citation

  • Barrows, Geoffrey & Calel, Raphael & Jégard, Martin & Ollivier, Hélène, 2023. "Estimating the effects of regulation when treated and control firms compete: a new method with application to the EU ETS," LSE Research Online Documents on Economics 119261, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119261
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    Cited by:

    1. Rottner, Elisa, 2023. "Do climate policies lead to outsourcing? Evidence from firm-level imports," ZEW Discussion Papers 23-070, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    regulation; spillovers; environment; energy; firms;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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