Agricultural Economics Department
Date of this Version
9-2010
Abstract
Associated with the trend towards large feeding operations in the U.S hog industry is the rapid increase in environmental regulations by the federal government and individual states. Some claim the regulations have sped up the exit of small hog farms. To examine the claim, we develop an empirically testable theoretical model for addressing the long-run impact of environmental regulations on entry and exit in an industry with heterogeneous firms. Comparative statics results show that the impact depends on the size bias (relative shifts in marginal and average cost) induced by regulations. Using aggregate state-level data, results show that environmental regulations significantly contributed to the exit of small hog feeding operations during the sample period (1994-2006).