Environmental policy uncertainty, policy coordination and relocation decisions
AbstractWe 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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Bibliographic InfoPaper 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.
Length: 37 pages
Date of creation: Dec 2003
Date of revision:
Location decision; policy uncertainty; environmental policy coordination; option;
Find related papers by JEL classification:
- F18 - International Economics - - Trade - - - Trade and Environment
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-01 (All new papers)
- NEP-ENV-2004-02-01 (Environmental Economics)
- NEP-MIC-2004-02-01 (Microeconomics)
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