Environmental issues and export competitiveness in U.S. animal agriculture

Abstract

This paper examines unintended policy consequences of the size-based environmental regulation on livestock operation productivity, where the regulation incentivizes operations to downsize to below the threshold to avoid the regulation. A theoretical framework is developed to model the effect of the Clean Water Act regulation updates in 2003 on livestock operation size and productivity distributions, as well as aggregate output. Our model predicts that the sizebased regulations create bunching of operations at the threshold from downsizing to avoid compliance. While our model predicts that non-compliance may not result in a different regulatory impact on aggregate output, it suggests potential overestimation of the environmental benefit and cost-effectiveness of the CAFO regulations.