Anticipation and Environmental Regulation

Katherine Rittenhouse and Matthew Zaragoza-Watkins

February 2017

When agents expect a regulation to change the relative price of new equipment, they may shift purchases forward to avoid compliance costs. In the context of new-vehicle emission standards, prior analyses have not considered this adjustment margin. We model the effects of anticipation on freight-truck sales and retirements, and test our theory's predictions empirically. Consistent with our predictions, we find evidence that anticipation caused a sales spike just before new emission standards took effect and a sales slump after implementation. Our findings have important implications for analysis of markets where agents can shift purchases in anticipation of new regulation.

JEL: C41, D92, Q58