A Model for Estimating the Economic Effects of Changes in Permitting Requirements: Working Paper 2026-10
Working Paper
CBO describes a structural model for estimating how changes in permitting requirements affect private investment. The framework shows how longer or more uncertain permitting processes increase the user cost of capital and reduce investment.
This paper describes a structural model for estimating how changes in permitting requirements affect private investment. The model's framework is a representative sector composed of projects that are identical at the outset and must undergo an uncertain permitting process before production can begin. Permitting delays and outcomes are governed by idiosyncratic shocks that generate uncertainty in both the probability of a project's approval and the timing of a project's completion. The model's framework shows how longer or more uncertain permitting processes increase the user cost of capital and reduce investment, with the elasticity of investment being governed by the demand elasticity for output. The model is calibrated using sectoral data and solved numerically to evaluate the macroeconomic effects of policy changes that would alter permitting duration, costs, or approval probabilities.
