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

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Abstract

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.

Suggested Citation

  • William D. Nordhaus, 1994. "Locational Competition and the Environment: Should Countries Harmonize Their Environmental Policies?," Cowles Foundation Discussion Papers 1079, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1079 Note: CFP 920.
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d10/d1079.pdf
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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, January.
    3. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    4. 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.
    5. Whalley, John, 1991. "The Interface between Environmental and Trade Policies," Economic Journal, Royal Economic Society, vol. 101(405), pages 180-189, March.
    6. 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.
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    Cited by:

    1. Wang, Yiming & Zhang, Pei & Huang, Dake & Cai, Changda, 2014. "Convergence behavior of carbon dioxide emissions in China," Economic Modelling, Elsevier, vol. 43(C), pages 75-80.
    2. Henry van Egteren & R. Smith, 2002. "Environmental Regulations Under Simple Negligence or Strict Liability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(4), pages 367-394, April.

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