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Environmental Regulation And The Optimal Location Of The Firm Under Uncertainty


  • Isik, Murat


This paper examines the optimal location of a competitive firm in response to environmental costs imposed by the abatement investment and taxes when the cost of the environmental regulation varies spatially under uncertainty. It contributes to the literature by incorporating the spatial setting into a risk-averse firm's location decisions in the presence of environmental regulation uncertainty. An increase in the cost of the environmental regulation moves a risk-averse firm closer to the output market. An augmented input or emission tax causes the risk-averse firm to locate closer to the output market. Uncertainty about environmental regulations in the form of the abatement investment and taxes also leads a risk-averse firm to locate closer to the output market, while it does not affect a risk-neutral firm's location decisions. The results have implications for the design and implementations of environmental and other development-related policies.

Suggested Citation

  • Isik, Murat, 2003. "Environmental Regulation And The Optimal Location Of The Firm Under Uncertainty," 2003 Annual meeting, July 27-30, Montreal, Canada 22066, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea03:22066

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    References listed on IDEAS

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    More about this item


    risk aversion; uncertainty; regulation; market-based policies.; Environmental Economics and Policy; Risk and Uncertainty; D81; R38; Q28.;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy


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