Business & Entrepreneurship Journal

Decentralized Pollution Standard Setting with Agglomeration Forces Present in a Model of Specific Firm Mobility

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• Abstract

   

  Herein we augment the traditional devolved environmental interjurisdictional-competition model with specific firm mobility in the presence of agglomeration economies. Now the number of firms in a jurisdiction becomes pertinent in the story of decentralized efficiency. Specifically, when agglomeration forces are sufficiently strong, firm movement is subdued. Placed-based environmental policies aimed at swaying a firm's location decision are rendered relatively ineffective. As a result, jurisdictions possess incentives to excessively overprotect environmental quality − a race-to-the-top. Firm taxation effects on devolved efficiency are also examined.

   

  JEL classification numbers: Q51, Q58, R38.

  Keywords: Decentralized environmental regulation, Agglomeration economies, Firm location.