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Environmental policy uncertainty, policy coordination and relocation decisions

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Author Info

  • T. VERBEKE

    ()

  • M. DE CLERCQ

    ()

Abstract

We analyse the relocation decision of a firm who is producing in one country (home country) but has the opportunity to relocate. The firm is faced with uncertain environmental policy formation both at home as well as in the foreign country. We allow for international environmental policy coordination and for environmental policy risks to be correlated with economy-wide risk. We show that the impact of uncertainty on the relocation decision depends on the absolute level of uncertainty. However, this relationship is substantially affected by the existence of policy coordination and the correlation between environmental policy uncertainty and economy-wide risks. In the case of coordinated environmental policies for instance, an Ushaped relation between uncertainty and relocation emerges.

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File URL: http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_03_208.pdf
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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 03/208.

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Length: 37 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:rug:rugwps:03/208

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Related research

Keywords: Location decision; policy uncertainty; environmental policy coordination; option;

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  1. Motta, Massimo & Thisse, Jacques-Francois, 1994. "Does environmental dumping lead to delocation?," European Economic Review, Elsevier, vol. 38(3-4), pages 563-576, April.
  2. Anastasios Xepapadeas, 1999. "Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions Under Uncertainty and Irreversibility," NBER Technical Working Papers 0243, National Bureau of Economic Research, Inc.
  3. Ulph, Alistair & Valentini, Laura, 2001. " Is Environmental Dumping Greater When Plants Are Footloose?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 673-88, December.
  4. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
  5. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
  6. Jacob Mincer, 1974. "Unemployment Effects of Minimum Wages," NBER Working Papers 0039, National Bureau of Economic Research, Inc.
  7. Tim Jeppesen & John A. List & Henk Folmer, 2002. "Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 19-49.
  8. Tim Jeppesen & Henk Folmer, 2001. "The confusing relationship between environmental policy and location behaviour of firms: A methodological review of selected case studies," The Annals of Regional Science, Springer, vol. 35(4), pages 523-546, December.
  9. James R. Markusen, 1996. "Costly Pollution Abatement, Competitiveness, and Plant Location Decisions," NBER Working Papers 5490, National Bureau of Economic Research, Inc.
  10. Wolfgang Keller & Arik Levinson, 1999. "Environmental Compliance Costs and Foreign Direct Investment Inflows to U.S. States," NBER Working Papers 7369, National Bureau of Economic Research, Inc.
  11. John A. List & W. Warren McHone & Daniel L. Millimet, 2003. "Effects of air quality regulation on the destination choice of relocating plants," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 657-678, October.
  12. Ulph, A. & Valentini, L., 1997. "Plant location and strategic environmental policy with inter-sectoral linkages," Resource and Energy Economics, Elsevier, vol. 19(4), pages 363-383, November.
  13. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
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Cited by:
  1. Jan Ženka & Vladislav Čadil, 2009. "Regional distribution of technology-intensive manufacturing industries in the czech republic with an accent on risk of delocalisation," Prague Economic Papers, University of Economics, Prague, vol. 2009(1), pages 61-77.

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