Locational Adjustments to Pollution Regulations: The South Coast Air Quality Management District and the Furniture Industry

Abstract

Since the 1960s, environmental regulations have played an increasingly large role in regulating the activities of private businesses that generate pollution. There has been little research, however, on the effects of environmental regulations on the location decisions of firms and industries. This article attempts to bridge this gap by examining the impact of air pollution regulations implemented by the South Coast Air Quality Management District in 1988 on the wood household furniture industry in southern California. The regulations created a great deal of uncertainty within the industry. Some firms relocated to Mexico to avoid compliance. Other firms remained in the region and attempted to adjust through product and process innovations. Over time, and with the help of institutions, the industry adjusted through a process of “learning by doing.” A challenge for community economic development practitioners is to build institutions that foster the learning process by which firms adjust to environmental regulations.