Jay Hyun, University of Alberta

Fri. Nov. 7 02:30 PM - Fri. Nov. 7 04:00 PM
Location: 3BC55

"When Regulation Travels: Supply Chain Disruptions and Environmental Spillovers under the Clean Air Act"

Abstract: We study how environmental regulation affects both supply chains and emissions, drawing on three key facts: (i) the Clean Air Act imposes geographically and temporally varying stringency, (ii) U.S. firms are increasingly embedded in supply chains, with regulation concentrated in regions where these firms are agglomerated, and (iii) inter-firm linkages transmit not only direct but also indirect regulatory exposure through business partners. By leveraging detailed firm-level network data, we distinguish between direct regulatory shocks to a firm's own establishments and indirect shocks originating from its suppliers and customers. First, we find that firms reorganize their supply chains by severing ties with regulated partners and encountering barriers to forming new regulated relationships, with little evidence of new ties emerging with unregulated partners as an adaptive response. Second, we show that establishments reduce emissions in response to direct and supplier-side regulations but emit more when their customers are regulated. The environmental outcomes are not significantly influenced by supply chain adjustments, suggesting that the emissions outcomes are largely driven by core relationships. The asymmetric emission patterns are consistent with customers' stronger bargaining power, which allows them to shift compliance burdens upstream. These results highlight the importance of accounting for indirect regulatory exposures through supply chains when understanding the dynamic adjustments of supply chain structures and assessing the environmental consequences of regulations.