Innovators as Rulemakers: Technical Knowledge and Firm Influence in Environmental Regulations

• In Event: Collaborative Governance and Institutional Design

Abstract

Firms in technologically intensive industries increasingly operate in regulatory environments that shape both the risks they face and the direction of innovation. In environmental policy, regulators must evaluate complex technological trade-offs under substantial information constraints, creating opportunities for firms to influence regulatory outcomes through the provision of expertise. This paper examines how firms leverage technical knowledge to shape environmental regulations through administrative rulemaking and whether such knowledge translates into regulatory influence.

I study firm participation in U.S. Environmental Protection Agency rulemaking from 2006 to 2024 by linking regulatory documents, public comments, firm characteristics, and patent-based measures of innovation. The rulemaking process provides a setting in which firms can directly communicate with regulators through the notice-and-comment procedure, allowing for detailed observation of both the content of firm input and policymakers’ responses. I construct fine-grained measures of technical information disclosed in firm-submitted comments by classifying sentence-level content and aggregating these classifications to the comment level. I then trace whether firms’ recommendations are incorporated into final regulations. This empirical design allows me to distinguish between firms’ underlying technical knowledge and their strategic disclosure of that knowledge in regulatory engagement.

Descriptive evidence also reveals systematic differences in engagement strategies: smaller firms rely more heavily on technical arguments than larger incumbents, and comments intended to alter proposed regulations contain higher levels of technical content. I then estimate a mediation model. The results show that firms with greater stocks of technical knowledge, measured by patent holdings, are more likely to have their input incorporated into final regulations, particularly when that knowledge relates to environmental technologies. This relationship operates in part through the disclosure of technical information in submitted comments. Conditional on technical disclosure, the direct effect of technical knowledge is attenuated, consistent with a mediating role of disclosure. At the same time, technical disclosure, especially internal firm-specific information derived from a firm’s own research and development activities, increases both the likelihood that a comment is considered by regulators and the probability that it is adopted. Firms with greater technical knowledge are also more likely to disclose technical information, indicating that knowledge shapes influence partly through its conversion into policy-relevant input. I further show that the translation from technical knowledge to disclosure depends on organizational conditions. Disclosure is more pronounced when comments are authored by personnel in technical roles, suggesting that access to technical knowledge within the firm boundary facilitates the communication of complex information to regulators.

These findings show that firms influence regulation not only through financial or access-based channels but also through the strategic deployment of technical knowledge. Moreover, regulatory influence depends not only on what firms know, but also on whether and how they translate that knowledge into credible and policy-relevant information for regulators, with implications for both firm strategy and the design of regulatory processes.

Author

• Heqiao Ma, Duke University
  Presenting Author