Pollution abatement expenditures and plant-level productivity: A production function approach

This paper investigates the impact of pollution abatement expenditures on productivity, using plant-level data from the Census Bureau for 68 pulp and paper mills, 55 oil refineries, and 27 steel mills for the 1979-1990 period. We estimate a Cobb-Douglas production function to measure the contribution of capital, labor, and materials inputs to output. Our data on pollution abatement expenditures allows us to distinguish between productive and abatement expenditures for each input. We find that abatement expenditures contribute little or nothing to production, although they do not have significant negative effects on the productivity of non-abatement inputs. We also examine within-industry heterogeneity, estimating separate impacts for subgroups of plants, based on their production technology and their types of pollution abatement investment, but find little evidence for significant differences across these groups.