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Interregional competition, comparative advantage and environmental federalism

Author

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  • Ida Ferrara
  • Paul Missios
  • Halis Murat Yildiz

Abstract

In this paper, we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods. We develop a tworegion, twogood model with interregional environmental damages and perfect competition in product markets, where both regions produce both goods. Despite positive spillovers of pollution across regions, the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes, depending on the degree of regional comparative advantage and the extent of transboundary pollution. This suggests that federalism can lead to either a race to the bottom or a race to the top, without relying on inefficient lobbying efforts or capital competition.

Suggested Citation

  • Ida Ferrara & Paul Missios & Halis Murat Yildiz, 2014. "Interregional competition, comparative advantage and environmental federalism," Canadian Journal of Economics, Canadian Economics Association, vol. 47(3), pages 905-952, August.
    • Handle: RePEc:cje:issued:v:47:y:2014:i:3:p:905-952
    DOI: 10.1111/caje.12098
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    Cited by:

    1. Hwang, Sanghyun, 2022. "Is There an Environmental Race to the Bottom in an Endogenous Growth Model of Interjurisdictional Competition?," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 63(1), pages 24-50, June.
    2. William M. Shobe & Dallas Burtraw, 2012. "Rethinking Environmental Federalism In A Warming World," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-33.

    More about this item

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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