IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/2003_019.html
   My bibliography  Save this paper

Domestic Environmental Policy under Asymmetric Information: The role of foreign ownership, outside options and market power

Author

Listed:
  • Vislie, Jon

    (Dept. of Economics, University of Oslo)

Abstract

We analyse environmental policy under asymmetric information in a context where a homepolluting firm, selling its final output solely in a foreign market with some market power, has an option to bypass domestic regulation through setting up new plants in a jurisdiction offering lenient environmental standards. The hidden characteristics are emission intensity and outside option, assumed perfectly correlated, so that the firm has a type-dependent reservation utility. There is mixed ownership to the firm; a fraction is owned by foreigners whose welfare does not enter the home government’s objective function. The home government has a limited set of policy instruments; in fact only net emissions can be taxed. The familiar trade-off between efficiency and rent extraction will involve over-pollution, with (possibly) a subset of the most emission-intensive firm types being induced to relocate. This effect is reinforced by increased foreign ownership, as the cost of leaving rent then increases. (Ownership has no real impact under complete information.) Weaker market power, due to increased competition at the world market, will work in the same direction, but now there is a counteracting effect due to a lower outside option.

Suggested Citation

  • Vislie, Jon, 2003. "Domestic Environmental Policy under Asymmetric Information: The role of foreign ownership, outside options and market power," Memorandum 19/2003, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2003_019
    as

    Download full text from publisher

    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-19-2003.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter.
    2. Armstrong, Mark, 1999. "Optimal Regulation with Unknown Demand and Cost Functions," Journal of Economic Theory, Elsevier, vol. 84(2), pages 196-215, February.
    3. Dijkstra, Bouwe R., 2003. "Direct regulation of a mobile polluting firm," Journal of Environmental Economics and Management, Elsevier, vol. 45(2), pages 265-277, March.
    4. Motta, Massimo & Thisse, Jacques-Francois, 1994. "Does environmental dumping lead to delocation?," European Economic Review, Elsevier, vol. 38(3-4), pages 563-576, April.
    5. 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.
    6. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    7. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
    8. Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
    9. Vislie,J., 2001. "Environmental regulation, asymmetric information and foreign ownership," Memorandum 07/2001, Oslo University, Department of Economics.
    10. Hoel, Michael, 1997. " Environmental Policy with Endogenous Plant Locations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 241-259, June.
    11. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    12. Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
    13. Rauscher, Michael, 1994. "Environmental Regulation and the Location of Polluting Industries," CEPR Discussion Papers 1032, C.E.P.R. Discussion Papers.
    14. Baron, David P., 1985. "Regulation of prices and pollution under incomplete information," Journal of Public Economics, Elsevier, vol. 28(2), pages 211-231, November.
    15. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
    16. Michael Hoel, 1997. "Environmental Policy with Endogenous Plant Locations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 241-259, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vislie,J., 2001. "Environmental regulation, asymmetric information and foreign ownership," Memorandum 07/2001, Oslo University, Department of Economics.
    2. Vislie,J., 2000. "Environmental regulation under asymmetric information with type-dependent outside option," Memorandum 18/2000, Oslo University, Department of Economics.
    3. Lassi Ahlvik & Matti Liski, 2019. "Think global, act local! A mechanism for global commons and mobile firms," CESifo Working Paper Series 7597, CESifo.
    4. Ottar Mæstad, 2001. "Efficient Climate Policy with Internationally Mobile Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 19(3), pages 267-284, July.
    5. Juan Bárcena-ruiz & María Garzón, 2003. "Strategic Environmental Standards, Wage Incomes and the Location of Polluting Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(2), pages 121-139, February.
    6. Lin-Ti Tan, 2005. "Spatial Economic Theory of Pollution Control under Stochastic Emissions," IEAS Working Paper : academic research 05-A009, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    7. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
    8. Imad Moosa, 2019. "The Environmental Effects of FDI: Evidence from MENA Countries," Working Papers 1321, Economic Research Forum, revised 21 Aug 2019.
    9. Juan Carlos Bárcena-Ruiz, 2006. "Environmental Taxes and First-Mover Advantages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 35(1), pages 19-39, September.
    10. Nelly Exbrayat & Stéphane Riou & Skerdilajda Zanaj, 2015. "Carbon tax, pollution and the spatial location of heterogeneous firms," Post-Print halshs-01211431, HAL.
    11. Masako Ikefuji & Jun-ichi Itaya & Makoto Okamura, 2016. "Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(2), pages 463-485, October.
    12. Robert Elliott & Ying Zhou, 2013. "Environmental Regulation Induced Foreign Direct Investment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(1), pages 141-158, May.
    13. Nelly Exbrayat & Stéphane Riou & Skerdilajda Zanaj, 2021. "A global carbon tax? Why firm mobility and heterogeneity matters," DEM Discussion Paper Series 21-17, Department of Economics at the University of Luxembourg.
    14. De Santis Roberto A. & Stähler Frank, 2009. "Foreign Direct Investment and Environmental Taxes," German Economic Review, De Gruyter, vol. 10(1), pages 115-135, February.
    15. Noha Elboghdadly & Michael Finus, 2020. "Strategic Climate Policies with Endogenous Plant Location: The Role of Border Carbon Adjustments," Graz Economics Papers 2020-07, University of Graz, Department of Economics.
    16. Ulph, Alistair & Valentini, Laura, 2000. "Environmental regulation, multinational companies and international competitiveness," Discussion Paper Series In Economics And Econometrics 0037, Economics Division, School of Social Sciences, University of Southampton.
    17. Nachtigall, Daniel, 2016. "Climate policy under firm relocation: The implications of phasing out free allowances," Discussion Papers 2016/25, Free University Berlin, School of Business & Economics.
    18. Daniel Nachtigall, 2016. "Climate policy under firm relocation: The implications of phasing out free allowances," Working Papers 2016007, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    19. Daniel Nachtigall, 2019. "Dynamic Climate Policy Under Firm Relocation: The Implications of Phasing Out Free Allowances," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 473-503, September.

    More about this item

    Keywords

    Asymmetric information; environmental regulation; globalisation;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:osloec:2003_019. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mari Strønstad Øverås (email available below). General contact details of provider: https://edirc.repec.org/data/souiono.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.