Green Technology Adoption: An Empirical Study of the Southern California Garment Cleaning Industry

New technologies are crucial in dealing with the problem of air and water pollution, which is an increasingly important issue with serious health and environmental consequences. Adoption of environmentally friendly technologies can be slow if the new technologies are not superior in terms of the firms’ private incentives, if firms have long equipment replacement cycles, or if firms do not have sufficient information to evaluate whether or not a switch to a green technology is in their private interests. To evaluate these potential explanations and the policies designed to address them, this paper uses importance sampling to estimate a dynamic durable good replacement model for garment cleaning firms in southern California. The standard dry cleaning technology uses perchloroethylene (perc), a toxic air and ground contaminant, and the alternative technologies have seen only limited adoption to date. The model controls for and exploits changing legislation to estimate the effect of fees and incentives on green equipment purchases, as well as the effect of product demonstrations. The estimated model is used to compare the predicted adoption and entry/exit decisions by firms under different regulatory regimes. While the model is tailored to the garment cleaning industry, it can be adapted to other applications involving the diffusion of socially better technologies. ∗I would like to thank Harikesh Nair, Sridhar Narayanan, and Peter Reiss for their helpful comments. I would like to especially thank Wesley Hartmann for his invaluable support and guidance throughout. All remaining mistakes are my own.