Electronic Resource
Berkeley, Calif.
:
Berkeley Electronic Press (now: De Gruyter)
Contributions to economic analysis & policy
3.2004, 2, art1
ISSN:
1538-0645
Source:
Berkeley Electronic Press Academic Journals
Topics:
Economics
Notes:
This paper develops a common agency model to analyze the strategic interaction between governments in regulating polluting multinationals. We show that when a firm has private information about its production technology relating output to pollution that is difficult to monitor, the information rent extraction behavior of non-cooperative governments will work against the "pollution haven" hypothesis in a Nash equilibrium with or without pooling. The "pollution haven" result is more likely to be reversed in a separating equilibrium than in a pooling equilibrium as a firm's output is further away from the most efficient outcome. This result provides an explanation for why many empirical studies do not support the "pollution haven" hypothesis even after controlling for private non-environmental cost differentials.
Type of Medium:
Electronic Resource
URL:
http://www.bepress.com/bejeap/contributions/vol3/iss2/art1
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