ENVIRONMENTAL COMPLIANCE COSTS AND THE DISTRIBUTION OF EMISSIONS IN THE U.S.* Daniel L. Millimet and Daniel Slottje Department of Economics, Southern Methodist University, Dallas, TX 75275, U.S.A. E-mail: millimet@mail.smu.edu ABSTRACT. Using the properties of the Gini coefficient, a structural model is developed to assess the impact of uniform changes in environmental compliance costs on the distribution of per capita emissions across U.S. counties and states, a distribution that places a larger burden on minorities. Using data from the U.S. EPA’s Toxic Release Inventory and three state-specific measures of environmental compliance costs, we find that uniform increases in federal environmental standards have little impact on the distribution of environmental hazards, and may actually exacerbate spatial inequality.As a result, Federal standards that target specific high pollution locations are necessary to redress current inequities. 1. INTRODUCTION A vast literature has emerged examining the impact of environmental regulation on firm location (e.g. List et al., 2001; Becker and Henderson, 2000; Levinson, 1996; Henderson, 1996; Jaffe et al., 1995). In addition, the spatial distribution of pollution and other environmental hazards has been and contin- ues to be well studied. Numerous studies have found evidence linking race and the distribution of environmental quality (Arora and Carson, 1999; Brooks and Sethi, 1997; Gelobter, 1992; Gianessi, Peskiny, and Wolff 1979;among others). Others have focused on the Coase theorem and the interaction between income and environmental quality (Harrison and Rubinfeld, 1978; Zupan, 1973), whereas others have examined interactions between local political activism and environmental quality (Arora and Carson, 1999; Brooks and Sethi, 1997). The purpose of this paper is to extend these two bodies of research by analyzing the effect of environmental regulation on the spatial distribution of pollution. To assess the impact of stricter environmental compliance costs on per capita emissions inequality across U.S. counties and states, we use a simple structural model along with the properties of the Gini coefficient developed in the income inequality literature. 1 From a social welfare perspective there are © Blackwell Publishing, Inc. 2002. Blackwell Publishing, Inc., 350 Main Street, Malden, MA 02148, USA and 108 Cowley Road, Oxford, OX4 1JF, UK. *We thank Per Fredriksson and John List for helpful comments on an earlier draft and express our gratitude to Arik Levinson for making the data on environmental compliance costs available. Received August 2000; revised March 2001; accepted May 2001. 1 The focus on emissions rather than concentrations, is in line with recent research examining environmental racism that also uses data from the Toxic Release Inventory (see Arora and Cason, 87 JOURNAL OF REGIONAL SCIENCE, VOL. 42, NO. 1, 2002, pp. 87–105