Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis

Abstract

The use of cost-benefit analysis by federal regulatory agencies has expanded greatly in scope and sophistication. Unfortunately, agencies continue to employ private cost rather than social cost to evaluate environmental quality regulations. Furthermore, general equilibrium impacts and intertemporal effects of regulations are typically not included in the evaluation. In this paper we estimate the social cost of environmental quality regulations mandated by the Clean Air and Clean Water acts. We construct an econometric general equilibrium model of the United States to demonstrate that social cost estimates diverge sharply from private cost estimates. We also demonstrate that general equilibrium impacts are significant and pervasive and that intertemporal effects of the regulations, heretofore ignored, are significant.