Environmental Regulation

Many studies that have analysed the cost of compliance with environmental regulation have invariably confined themselves to the direct costs involved. However, a few studies have attempted to examine the effect of regulation on the production process of the firm and considered it as the additional unaccounted cost of compliance. This study, following the method developed by Morgenstern and others in 1998, estimates the hidden costs involved due to environmental regulation. Using firm-level primary survey data, this study of the Karur textile industrial cluster finds that there are hidden costs involved in complying with environmental regulation; the policy-maker has to take these additional costs into consideration.