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Locational Competition and the Environment: Should Countries Harmonize Their Environmental Policies?

In debates about economic unification or trade liberalization, it is often asked whether harmonization should go beyond taxes and macroeconomic policies to include regulations, particularly environmental policy. This issue also arises when countries, states, and cities engage in competition for plants, jobs, or exports in what we might call "locational competition." This essay analyzes locational competition with particular reference to environmental policy. The conclusions are the following: First, economic efficiency requires harmonization of policies for global environmental issues; second, for local public goods or externalities, there is a strong presumptive case against harmonization; and finally that a competitive "race to the bottom" in environmental policies is inconsistent with countries' following their own economic self-interests.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1079.

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Length: 36 pages
Date of creation: Sep 1994
Date of revision:
Publication status: Published in Horst Sieber, ed., Locational Competition in the World Economy: Symposium 1994, 1995, pp. 261-287
Handle: RePEc:cwl:cwldpp:1079
Note: CFP 920.
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, June.
  2. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
  3. Whalley, John, 1991. "The Interface between Environmental and Trade Policies," Economic Journal, Royal Economic Society, vol. 101(405), pages 180-89, March.
  4. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
  5. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  6. Robert K. Kaufmann & Peter Pauly & Julie Sweitzer, 1993. "The Effects of NAFTA on the Environment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 217-240.
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