Environmental Policy When Market Structure and Plant Locations are Endo-genous
AbstractA two-region, two-firm model is developed in which firms choose the number and the regional locations of their plants. Both firms pollute and, in this context, market structure is endogenous to environmental policy. There are increasing returns at the plant level, imperfect competition between the "home" and the "foreign" firm, and transport costs between the two markets. These features imply that at critical levels of environmental policy variables, small policy changes cause large discrete jumps in a region's pollution and welfare as a firm closes or opens a plant, or shifts production for the foreign region from/to the home-region plant to/from a foreign branch plant. The implications for optimal environmental policy differ significantly from those suggested by traditional Pigouvian marginal analysis.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3671.
Date of creation: Apr 1991
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Publication status: published as Journal of Environmental Economics and Management, vol. 24, 1993, p. 69-86
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Other versions of this item:
- Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
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