Divestment Dynamics in U.S. and Canadian Asbestos Mining Industry

This paper empirically studies U.S. and Canadian asbestos mining firms’ divestment process when the asbestos industry faced a long-run decline in demand. I develop a dynamic oligopoly model of capacity adjustment and exit based on Ericson and Pakes (1995). I calibrate my model to a panel data of the U.S. and Canadian asbestos mining industry’s capacities and exit/stay status over 1968-2002, and evaluate the welfare effect of The Asbestos Mines and Mills Release Regulations enacted in Canada in 1990. I find that the 1990 Regulations decreased producers’ surplus by 0.37% and decreased consumers’ surplus by 0.22%, besides positive health effects. Specifically, through the channel of changing market structure, the Regulations led to a welfare gain of asbestos producers because it hastened the divestment process of the industry, resulting in an increase of 0.39% in industry’s profits.