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Inter-regional Competition, Comparative Advantage, and Environmental Federalism

  • Paul Missios

    ()

    (Department of Economics, Ryerson University, Toronto, Canada)

  • Ida Ferrara

    ()

    (DEpartment of Economics, York University, Toronto, Canada)

  • Halis Murat Yildiz

    ()

    (Department of Economics, Ryerson University, Toronto, Canada)

In this paper, we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods. We develop a two-region, two-good model with inter-regional environmental damages and perfect competition in product markets, where both regions produce both goods. Despite positive spillovers of pollution across regions, the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes, depending on the degree of regional comparative advantage and the extent of transboundary pollution. This suggests that federalism can lead to either a "race to the bottom" or a "race to the top," without relying on inefficient lobbying efforts or capital competition.

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File URL: http://economics.ryerson.ca/workingpapers/wp027.pdf
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Paper provided by Ryerson University, Department of Economics in its series Working Papers with number 027.

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Length: 41 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:rye:wpaper:wp027
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  1. Sigman, Hilary, 2005. "Transboundary spillovers and decentralization of environmental policies," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 82-101, July.
  2. Horn, Henrik & Maggi, Giovanni & Staiger, Rikard W., 2007. "Trade Agreements as Endogenously Incomplete Contracts," Working Paper Series 689, Research Institute of Industrial Economics.
  3. Kunce, Mitch & Shogren, Jason F., 2002. "On Environmental Federalism and Direct Emission Control," Journal of Urban Economics, Elsevier, vol. 51(2), pages 238-245, March.
  4. Richter, Wolfram F. & Wellisch, Dietmar, 1996. "The provision of local public goods and factors in the presence of firm and household mobility," Journal of Public Economics, Elsevier, vol. 60(1), pages 73-93, April.
  5. Murdoch, James C. & Sandler, Todd, 1997. "The voluntary provision of a pure public good: The case of reduced CFC emissions and the Montreal Protocol," Journal of Public Economics, Elsevier, vol. 63(3), pages 331-349, February.
  6. Fredriksson, Per G. & Mani, Muthukumara & Wollscheid, Jim R., 2006. "Environmental federalism : a panacea or Pandora's box for developing countries?," Policy Research Working Paper Series 3847, The World Bank.
  7. Peltzman, Sam & Tideman, T Nicolaus, 1972. "Local versus National Pollution Control: Note," American Economic Review, American Economic Association, vol. 62(5), pages 959-63, December.
  8. Douglas Holtz-Eakin & Thomas M. Selden, 1992. "Stoking the Fires? Co2 Emissions and Economic Growth," NBER Working Papers 4248, National Bureau of Economic Research, Inc.
  9. Wellisch Dietmar, 1995. "Locational Choices of Firms and Decentralized Environmental Policy with Various Instruments," Journal of Urban Economics, Elsevier, vol. 37(3), pages 290-310, May.
  10. John A. List & Shelby Gerking, 2000. "Regulatory Federalism and Environmental Protection in the United States," Journal of Regional Science, Wiley Blackwell, vol. 40(3), pages 453-471.
  11. Daniel L. Millimet, 2003. "Assessing the Empirical Impact of Environmental Federalism," Journal of Regional Science, Wiley Blackwell, vol. 43(4), pages 711-733.
  12. Fredriksson, Per G & Gaston, Noel, 2000. "Environmental Governance in Federal Systems: The Effects of Capital Competition and Lobby Groups," Economic Inquiry, Western Economic Association International, vol. 38(3), pages 501-14, July.
  13. Ulph, Alistair, 2000. "Harmonization and Optimal Environmental Policy in a Federal System with Asymmetric Information," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 224-241, March.
  14. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
  15. Kunce, Mitch & Shogren, Jason F., 2005. "On interjurisdictional competition and environmental federalism," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 212-224, July.
  16. James R. Markusen & Edward R. Morey & Nancy Olewiler, 1992. "Noncooperative Equilibria in Regional Environmental Policies When Plant Locations are Endogenous," NBER Working Papers 4051, National Bureau of Economic Research, Inc.
  17. Levinson, Arik, 1997. "A Note on Environmental Federalism: Interpreting Some Contradictory Results," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 359-366, July.
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