environmental regulations under simple negligence or strict liability we use negligence and strict liability as the basis for environmentalregulations and show that when jurisdictions compete for firms that engagein environmentally risky behaviour strict liability implements the sociallyoptimal outcome while simple negligence does not even if the jurisdictionsfully cooperate in setting standards of care consequently we argue that even if jurisdictions delegate standard setting to a central authority likein the european union this would not implement the socially optimaloutcome we also demonstrate that harmonization of environmental regulationsmakes more sense if strict liability is used rather than simple negligence

environmental federalism and environmental liability abstract environmental federalism considers what level of government should optimally regulate pollution this paper addresses this question for accidental pollution which government regulates through the ex post liability regimes of either negligence or strict liability we find that decentralizing the choice between these regimes does not in general induce the socially optimal outcome when firms can pay all damages all regions may choose negligence and impose an overly strict standard of due care when firms may be bankrupted by damages all regions may choose strict liability which induces too little care in addition asymmetric equilibria are possible in which some regions choose negligence others strict liability combining negligence with a pigovian tax or strict liability with a bonding requirement can align regional authorities incentives with those of a central government

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

comment on m hoel emission taxes versus other environmental policies the choice of the appropriate instrument in environmental policy is not only a question of theoretical importance it is also of considerable political relevance while environmental taxes are sometimes used to control pollution quotas and direct controls dominate in practice if this observed bias is only due to the nature of policymaking and not supported by economic reasoning politicians are not well advised to use quotas and direct controls instead of environmental taxes hoel discusses popular arguments that are often used by politicians in favour of direct controls and concludes that the results are typically not clear cut in this comment i would like to focus on the employment effects of revenue raising and nonrevenue raising instruments politicians as well as special interest groups often claim that emission taxes increase the cost of production thereby harming employment clearly in the face of high rates of unemployment in many industrialized countries potentially negative employment effects of environmental regulation raise political resistance to green policy the ongoing debate has put

think locally act locally spillovers spillbacks and efficient decentralized policymaking we analyze models with interjurisdictional spillovers among heterogeneous jurisdictions such as co 2 emissions that affect the global environment each jurisdiction s emissions depend upon the local stock of capital which is interjurisdictionally mobile and subject to local taxation in important cases decentralized policymaking leads to efficient resource allocation even in the complete absence of corrective interventions by higher level governments or coordination of policy through coasian bargaining in particular even when the preferences and production technologies differ among the agents the decentralized system can result in globally efficient allocation

environmental policy in a federation with special interest politics and inter governmental grants the paper explores the potential effect of intergovernmental grants igg on sub national local environmental policy in a federal structure in the model a politically inclined local government receives campaign contributions from the polluters lobby in return for lower pollution taxes a benevolent federal government uses igg as an incentive to reduce the resulting distortion in the local pollution tax igg are formulaic transfers that are conditional on pollution levels lower pollution in a sub national jurisdiction relative to others translates into a higher share of the grant and vice versa in equilibrium the grant effect reduces the distortion created in the pollution tax by the lobby effect and may even lead to a higher than pigouvian tax when the local government assigns a large enough weight on social welfare and or when the grant is large enough further igg result in the tax levels of jurisdictions becoming interdependent in an interesting way environmental policies in two jurisdictions may become strategic complements or substitutes depending on their relative pollution levels the possibility of strategic substitution implies that federal welfare may not increase even when environmental policy becomes stricter in one state

growing state federal conflicts in environmental policy the role of market based regulation abstract in recent years cases in which state governments chose to override federal environmental regulation with tighter regulations of their own have become increasingly common even for pollutants that have substantial spillovers across states this paper argues that this change arose at least in part because of a shift in the type of regulation used at the federal level from command and control regulation toward more incentive based regulation under an incentive based federal regulation a state imposing a tighter regulation will bear only part of the additional cost and thus has more incentive to tighten regulation than it does under federal command and control this difference helps to explain observed patterns of regulation in addition it has implications for the choice of regulatory instruments for a pollutant that causes both local and spillover damage a federal pollution tax is likely to yield a more efficient outcome than federal command and control policy or a federal system of tradable permits

on environmental federalism and direct emission control abstract a theoretical exception to the race to the bottom contends that if decentralized environmental policy is comprised of direct controls on each firm emissions standards are set too high when compared to a centralized optimum herein we examine potential distortions in decentralized decision making by reconciling two recent views of direct environmental controls we show that differences in direct control policy can arise from differences in the number of symmetric jurisdictions in an economy our results suggest the race is on once the number of jurisdictions competing for a fixed number of firms increase we see the race is off when few jurisdictions can exploit their form of environmental market power

fiscal federalism and interjurisdictional externalities new results and an application to us air pollution abstract the economics of fiscal federalism has identified two book end departures from first best provision of a public good local governments may respond to local conditions but ignore inter jurisdictional spillovers alternatively central governments may internalize spillovers but impose uniform incentives ignoring local heterogeneity we provide a simple model that demonstrates that the choice of pricing policy also depends crucially on a third factor the shape of marginal costs of providing the public good if marginal costs are convex then marginal abatement cost elasticities will be higher around the local policies this increases the deadweight loss of those policies relative to the centralized policy ceteris paribus if they are concave then the opposite is true using a detailed simulation model of the us electricity sector we then empirically explore these tradeoffs for us air pollution we find that us states acting in their own interest lose about 31 5 of the potential first best benefits whereas the second best uniform policy loses only 0 2 of benefits the centralized policy outperforms the state policy for two reasons first inter state spillovers are simply more important that inter state heterogeneity in this application second because of the convexity of the marginal cost functions elasticities are much lower over the range relevant to the centralized policy dampening the distortions

williamson s the economic institutions of capitalism there can be no doubt this book is a major contribution perhaps the volume is best characterized as a systematic theoretical examination of those portions of society s economic activities that the market mechanism does not automatically run to perfection but here such activities are not simply listed as market failures and forgotten rather they are treated appropriately as normal and widespread economic phenomena whose anatomy urgently requires examination and understanding vertical integration is an archtypical example if the unaided market mechanism did everything perfectly firms would rarely be able to enhance efficiency by integrating vertically it would usually be optimal for intermediate goods to be bought from independent suppliers on the free market i have more than once enjoyed teasing businesspersons bent on defending the vertical integration of their firms by suggesting that they are soviet central planners at heart and that when push comes to shove they have little use for the market mechanism in practice of course the truth generally lies somewhat in between for any given firm there is presumably an optimal degree of vertical integration determined by the requirements of economy in production and economy in the governance process or as williamson puts it of economizing in transactions costs the point is that a variety of institutions and behavior patterns really make sense primarily in terms of their relative efficacy in dealing with transactions costs that renders each in turn best in different circumstances decentralized and hierarchical organization of firms the vast variety of contractual forms franchising tie ins and many others these are the sorts of institutions to which williamson s analysis is devoted it should be said at once that i can find no major point of disagreement with his analysis on the contrary i enthusiastically accept the substance of all his central conclusions this extends also to williamson s characterization of the contestability literature and its relation to his own analysis which i believe he has done completely correctly as will be spelled out presently i have only two substantive reservations about the book the first is a slight tendency by the author to overstatement of claims for the new analysis a manifestation of enthusiasm which is no doubt commendable in a pioneer and in any event i know i am hardly in a

eco dumping capital mobility and international trade a small open economy s optimal environmental policy is studied in a model with international capital mobility and local pollution the country produces traded as well as non traded goods is it in the country s interest to engage in ecological dumping by choosing generous pollution allowances for the traded good sector the answer depends decisively on the policy regime in use dumping is not optimal if the country ensures that the implicit rent on pollution is completely appropriated within the country however if the implicit factor reward on pollution leaves the country because it accrues to foreign owners of mobile capital the local welfare maximizing government tends to discriminate against the traded good sector the opposite of ecological dumping

inter regional competition comparative advantage and environmental federalism in this paper we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods we develop a two region two good model with inter regional environmental damages and perfect competition in product markets where both regions produce both goods despite positive spillovers of pollution across regions the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes depending on the degree of regional comparative advantage and the extent of transboundary pollution this suggests that federalism can lead to either a race to the bottom or a race to the top without relying on inefficient lobbying efforts or capital competition resume concurrence inter regionale avantage comparatif et federalisme environnemental dans ce texte les auteurs comparent l appareil de definition de politique environnementale endogene pour des gouvernements centralises et decentralises quand les regions ont des avantages comparatifs dans la production de divers biens polluants on developpe un modele a deux regions et a deux biens operant dans un cadre ou existent 1 des effets de retombees inter regionales toxiques pour l environnement 2 concurrence parfaite dans les marches des produits et 3 ou les deux regions produisent les deux biens malgre les effets de pollution entre regions le modele predit que la decentralisation peut entrainer des standards et des taxes portant sur l environnement qui sont soit plus faibles ou plus forts selon le degre d avantage comparatif regional et la nature de la pollution transfrontiere on suggere que le federalisme peut conduire a une emulation soit vers le bas soit vers le haut sans avoir a avoir recours a des efforts de lobbying inefficaces ou a la concurrence pour le capital pour expliquer le resultat

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

efficient decentralized fiscal and environmental policy a dual purpose henry george tax abstract one consequence of decentralized responsibility to set tax policy and environmental standards is that local governments might try to attract industry and jobs by underproviding local public goods with lower taxes or lax environmental standards or both but if local authorities exploit fixed property site i e land taxation to fund local public goods affect firm migration and internalize potential local emission rents herein we find decentralized efficiency is supported this result reflects a dual form of the classic henry george theorem previously overlooked

environmental taxation and the double dividend in decentralized jurisdictions this research explores the implications for jurisdictional welfare of sharing environmental rents between private and public consumption an integrated model is developed from research literatures on jurisdictional competition the double dividend and on the design of tax refund instruments this model shows that jurisdictional welfare increases as environmental rents are initially allocated towards public consumption yielding a double dividend but that this dividend may or may not continue as all rents are shifted to public finance when the double dividend occurs the rent allocation both improves the efficiency of the tax system and reduces the private public consumption distortion that decentralized jurisdictional decision making creates in some parameter configurations there is an optimal rental allocation between the private sector and the local government at this optimum environmental and fiscal policies are set at their first best levels and decentralized jurisdictional decision making is globally efficient if less rents are allocated to public finance than this optimum fiscal and environmental policies will be suboptimal whereas if too much rent is allocated for public consumption fiscal and environmental policies will be set at levels above the global efficiency standard these results illustrate the crucial importance of environmental rent sharing for the efficiency of jurisdictional decision making

direct regulation of a mobile polluting firm abstract we compare noncooperative regional environmental policy to cooperative national policy for direct regulation of a mobile firm the national government can always reach its first best with commitment but not with time consistent policy with commitment regional policy results in a game of chicken with too little output or in not in my backyard without commitment regional policy may improve upon national policy this happens when regional policy discourages the investment whereas the welfare reducing investment does take place with national policy

substitutability and protectionism latin america s trade policy and imports from china and india this article examines the trade policy response of latin american governments to the rapid growth of chinese and indian exports in world markets to explain more protection in sectors where a large share of imports originates in china and india the protection for sale model is extended to allow for region specific degrees of substitutability between domestic and imported varieties of a good the results suggest that more protection toward chinese and indian goods can be explained by the higher substitutability of chinese and indian goods with domestic varieties the data support the model which performs better than the original protection for sale framework in explaining latin america s structure of protection

locational choices of firms and decentralized environmental policy with various instruments abstract suppose there exists a federation with a given number of mobile firms generating waste emissions in the jurisdiction in which they locate this paper demonstrates that if jurisdictions use emission taxes or marketable emission rights to control pollution within their boundaries and distribute the revenues captured by these instruments in a socially efficient way firms locate efficiently taking their pollution externalities into account decentralized environmental policy relying on direct controls however prevents locational efficiency of mobile firms furthermore if jurisdictions are small decentralized environmental policy with emission taxes and marketable pollution rights also support an efficient environmental quality while a policy using direct controls sets too high emission standards

on the efficiency of environmental instruments in a spatial economy this paper develops an efficiency criterion to evaluate environmental policy instruments in a spatial economy we call an environmental policy regime at the regional level efficient if it guarantees not only an efficient distribution of emission permits within a region but also an efficient locational pattern of mobile firms across the regions of a federation using marketable pollution rights or emission taxes efficiency in this broad sense can only be achieved if revenues of regional environmental agencies are not transferred to regional firms direct controls neither support an efficient allocation of emission rights within a region nor locational efficiency of firms

the provision of local public goods and factors in the presence of firm and household mobility abstract this paper studies the efficiency properties of allocations when firms and households are mobile and when local governments provide local public goods and local public factors the analysis differentiates between immobile land owners and perfectly mobile workers and concludes that an efficient allocation is obtained if there is no outflow of land rents to absentee owners if rents flow out only local public goods are supplied in accordance with the samuelson rule the provision of local public factors is inefficiently low however and jurisdictions tax mobile firms and mobile households inefficiently high in order to restrict the outflow of rents an optimal intervention scheme is derived in this case we also analyze the distortions that result when the non availability of local head taxes makes it impossible to internalize crowding costs

on interjurisdictional competition and environmental federalism herein we construct a competitive interjurisdictional model that reconciles two recent exceptions to the race to the bottom j publ econ 35 1988 333 354 j urban econ 37 1995 290 310 our results suggest that since environmental rents from local production are likely not captured 100 percent by local residents devolved command and control environmental regulation is inefficient moreover faced with the reality of fiscal constraints local governments adopt property tax structures that serve to compound inefficiencies within such a second best setting if a jurisdiction underprovides non environmental public goods and jurisdictional capital productivity and emissions are strong complements a race to the bottom equilibrium is supported