Events

Yifei Liu
Ph.D. candidate in Agricultural & Applied Economics
University of Wisconsin

Legal risks arising from the permitting process may deter infrastructure development,but their magnitude and mechanisms are unclear. Using novel litigation data on en-vironmental and land-use permits, I study this question in the context of renewable energy infrastructure. I find that litigation influences market entry through two path-ways. Directly, a history of litigation deters renewable market entry by 4 percent at the mean entry rate through perceived risk, while legal precedent encourages en-try by 9 percent by clarifying legal standards. Indirectly, through regulatory agency responses, litigation extends permit review timelines by 21 days on average and by 206 days following negative rulings, while legal precedent mitigates these delays. The informational clarity created by legal precedent generates non-rival, non-excludable spillovers, resembling a public good. Because developers bear private litigation costs while the benefits of clearer standards are shared market-wide, economic theory pre-dicts underinvestment in legal precedent. I develop a structural model to quantify permitting costs and assess the extent of this underinvestment. The model estimates average permitting costs of $5.5 million, or 14 percent of expected project net prof-its. Counterfactual simulations show that a legal fee shifting scheme would increase market entry by 6.1 percent, compared to 3.4 percent from permitting cost reductions. Internalizing the externalities of legal precedent may accelerate renewable deployment more effectively than administrative reforms alone.