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Costly pollution abatement, competitiveness and plant location decisions

  • Markusen, James R.

This quote contains two separate policy suggestions: (1) Trade barriers insulate production and welfare from any adverse responses to costly environmental restrictions. (2) Banning multinationals would insulate production and welfare from any adverse effects of costly environmental restrictions. This paper adapts an oligopoly model, in which multinationals (multi-plant firms) can arise endogenously, to examine this position. This paper finds that: (1) Trade barriers insulate production but not welfare from adverse effects of costly environmental restrictions. (2) Banning multinationals does not insulate production and welfare from any adverse effects of these restrictions or regulations. On the contrary, multinationals appear to smooth production effects, but this is because multinationals arise in equilibrium when trade costs are high. In addition, the paper finds that the form taken by cost increases is crucial: restrictions that fall on fixed costs (e.g., more efficient burners and motors) have much smaller effects on production and welfare than restrictions that fall on marginal costs (e.g., cleaner fuels).

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File URL: http://www.sciencedirect.com/science/article/B6VFJ-3SX4P21-3/2/6b4dd942cb112c015831a9b0ba006747
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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 19 (1997)
Issue (Month): 4 (November)
Pages: 299-320

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Handle: RePEc:eee:resene:v:19:y:1997:i:4:p:299-320
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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  1. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
  2. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
  3. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  4. Markusen, James R. & Rutherford, Thomas F. & Hunter, Linda, 1995. "Trade liberalization in a multinational-dominated industry," Journal of International Economics, Elsevier, vol. 38(1-2), pages 95-117, February.
  5. James R. Markusen & Edward R. Morey & Nancy Olewiler, 1991. "Environmental Policy When Market Structure and Plant Locations are Endo-genous," NBER Working Papers 3671, National Bureau of Economic Research, Inc.
  6. Michael Rauscher, 1995. "Environmental regulation and the location of polluting industries," International Tax and Public Finance, Springer, vol. 2(2), pages 229-244, August.
  7. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  8. Rauscher, Michael, 1994. "Environmental regulation and the location of polluting industries," Kiel Working Papers 639, Kiel Institute for the World Economy.
  9. Rauscher, Michael, 1994. "Environmental Regulation and the Location of Polluting Industries," CEPR Discussion Papers 1032, C.E.P.R. Discussion Papers.
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