When environmental regulations are proposed by the EPA or other federal regulatory agencies, both the regulator and regulated, and sometimes third parties, prepare estimates of the cost of compliance. The purpose of this research is to analyze the differences between the initial cost estimates before compliance and the actual costs of compliance. The first part of the project will analyze the use of cost estimates by the various parties from a theoretical perspective. The second part, which is the major emphasis of the research, involves a number of case studies of EPA regulations. In these case studies the estimated compliance cost made by different parties will be systematically compared to the actual compliance costs, and any divergence between actual and estimated costs will be analyzed. This research is important because it should help to shed light on the suspicion that regulated firms frequently overestimate cost estimates in an effort to effect regulatory outcomes, while regulatory agencies and third parties tend to underestimate them.
