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.