Destructive interjurisdictional competition: Firm, capital and labor mobility in a model of direct emission control

Abstract

A theoretical exception to a regional race to the bottom contends that, if decentralized environmental policy is comprised of direct controls on each firm—emissions standards are set too high relative to a centralized optimum, provided populations are immobile. Herein, we relax population immobility within a ‘purely competitive’ interjurisdictional model of direct environmental controls. By generalizing previous models, we show that the race is likely to be on when local land incomes are important and firms respond grudgingly to changes in direct emission controls.