Environmental Policy When Market Structure and Plant Locations are Endo-Genous

33 Pages Posted: 19 Jul 2010  

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Edward R. Morey

University of Colorado at Boulder - Department of Economics; National Bureau of Economic Research (NBER)

Nancy Olewiler

Simon Fraser University (SFU) - Department of Economics

Date Written: April 1991

Abstract

A two-region, two-firm model is developed in which firms choose the number and the regional locations of their plants. Both firms pollute and, in this context, market structure is endogenous to environmental policy. There are increasing returns at the plant level, imperfect competition between the "home" and the "foreign" firm, and transport costs between the two markets. These features imply that at critical levels of environmental policy variables, small policy changes cause large discrete jumps in a region's pollution and welfare as a firm closes or opens a plant, or shifts production for the foreign region from/to the home-region plant to/from a foreign branch plant. The implications for optimal environmental policy differ significantly from those suggested by traditional Pigouvian marginal analysis.

Suggested Citation

Markusen, James R. and Morey, Edward R. and Olewiler, Nancy, Environmental Policy When Market Structure and Plant Locations are Endo-Genous (April 1991). NBER Working Paper No. w3671. Available at SSRN: https://ssrn.com/abstract=1640416

James R. Markusen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-0748 (Phone)
303-492-8960 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Edward R. Morey

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6898 (Phone)
303-492-8960 (Fax)

HOME PAGE: http://www.colorado.edu/Economics/morey/index.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nancy Olewiler

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
(604) 291-3442 (Phone)

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