An Income Efficiency Model Approach to the Economic Consequences of the OSHA Cotton Dust Regulations

Theories of regulation have generally been tested by using a regression approach or an an event study approach. This paper was inspired by the Coase (1937) theory of the firm. It used Data Envelopment Analysis (DEA) to test the economic consequences of the Occupational Health and Safety Administration (OSHA) cotton dust standards by comparing the managerial efficiency of the firms affected by the cotton dust for the years before and after the US Supreme Court upheld the decision in 1981. Accounting inputs of common equity, total assets, and production costs were minimized while the total revenue was maximized. Controlling for the effects of imports for consumption providing for asymmetric disadvantages to US firms, we found that surviving firms had become more productively efficient during the post regulatory period as predicted. Apparently, these firms were able to accommodate the dust standard, reduce costs, and improve the operating efficiency of these firms simultaneously. These results indicate the usefulness of DEA as an alternative method of testing the theories of regulation