Early adopters, firm survival, and environmental policy: dry cleaners in the South Coast Basin of California

Abstract

This paper examines the relationship between the early adoption of new technologies, the probability of firm survival, and environmental regulations through a case study of dry cleaners in the South Coast Basin of California (SC Basin). Most dry cleaners use machines that use the toxic chemical perchloroethylene (PERC) to clean garments. PERC vapors are emitted into the ambient air during the dry cleaning process and can cause cancer in people who live and work nearby. In 2002, the South Coast Air Quality Management District (AQMD) required all dry cleaners in the region to purchase a costly alternative machine that used a non-toxic cleaning solvent by the year 2020. Using bivariate and multivariate analysis, we found that the timing of the early adoption of non-PERC machines among dry cleaners was optimal, ceteris paribus, and adopting early did not have a negative effect on the probability of surviving.

Keywords:

• innovation
• early adopters
• firm survival
• environmental regulations
• dry cleaning

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The theoretical background for much of the literature dealing with the relationship between innovation and firm survival is Schumpeter’s theory of technological change. According to this theory, there are three stages by which a new, superior technology permeates the marketplace: 1) invention, 2) innovation, and 3) diffusion. During the invention stage new products or processes are discovered; inventions develop into an innovation when they are commercialized; and, a successful innovation, in the third stage, gradually comes to be widely available for use in relevant applications through the adoption and diffusion of the technology by firms and industries.

2 The literature on technology adoption has had a tendency to focus on the adoption and diffusion of technologies that ultimately proved successful. However, “…..it seems reasonable to insist that any serious model of diffusion ought to include failure as a possible outcome (Geroski 2000, 618).”

3 The SC Basin covers 10,743 square miles and is home to about 17 million people.

4 PERC is a colorless, non-flammable, dense liquid. It has a sweet, ether-like odor detectable at air concentrations of 6,780 to 33,900 ug/m3 (Altmann et al. 1995).

5 A prolific literature has emerged analyzing the negative health effects of PERC emissions from dry cleaners, including Altmann et al. (1995); Vlaanderen et al. (2014); Campbell and Low (2002); McDermott et al. (2005); Tucker et al. (2011); Astrid et al. (2015); US Environmental Protection Agency (1995); California EPA 2002; Schreiber et al. (2002); and Brown and Kaplan (1987).

6 At some point between 2002 and 2013 the new technologies (the alternative machines) would have made a transition from being a “new” technology to an “existing” technology. This distinction, however, is arbitrary and relative. We expand on this point in the conclusion of the paper.

7 PERC is one of 187 air toxics – pollutants known or suspected to cause cancer and other serious health problems in humans - that are regulated by the EPA (US Environmental Protection Agency 1995).

8 See endnote number 5.

9 PERC use from dry cleaning has also contaminated soil and groundwater.

10 In response to the health risks associated with the emission of PERC into the ambient air, the US Environmental Protection Agency (EPA) implemented the National Emission Standards for Hazardous Air Pollutants (NESHAP) for Perchloroethylene Dry Cleaning Facilities in 1993 (US Environmental Protection Agency 1995). The NESHAP required all new and large dry cleaning machines to install PERC vapor recovery systems, equipment designed to capture PERC emissions before being emitted into the ambient air. State and regional agencies were required to enforce the NESHAP with discretion to adopt stricter measures. In 1994, the State of California implemented the Air Toxic Control Measure (ATCM) requiring all dry cleaners in California to use closed-loop machines with refrigerated condensers and, after 1998, integrated primary and secondary control systems (California Air Resources Board 2010). They were also required to follow strict operating and maintenance practices. The ATCM reduced PERC emissions into the ambient air from dry cleaning machines in California by 80% (South Coast Air Quality Management District 2000).

11 This particular study measured over 30 toxic air contaminants in the SC Basin.

12 Commercial risk is calculated to be less than residential risk due to adjustment of the exposure period to account for a 40-year working exposure spent at the location rather than a 70-year residential exposure.

13 After 2003, dry cleaners in the region purchasing a new machine are required to purchase a non-PERC machine.

14 It’s relevant to note that the non-PERC machines had been on the market for less than 10 years (Dabirian 2002).

15 It’s interesting to note that the complete diffusion of new technologies throughout an industry is generally a slow process. It can take several years or decades (Geroski 2000).

16 The size of each of these alternative machines is similar to the size of PERC machines – approximately 5-7 feet in width and length and 7-8 feet in height.

17 There is also the possibility that dry cleaners located in commercial districts may face pressure from other retailers or their landlords to eliminate the use of PERC in order to make the business district more attractive to consumers.

18 The AQMD keeps track of dry cleaning firms using hydrocarbon technology because hydrocarbon machines emit volatile organic compounds into the ambient air.

19 We utilize a standard logistic regression model and not a Cox Hazard model, which is common in survival analysis, due to data limitations.