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Pollution Havens and the Regulation of Multinationals with Asymmetric Information

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  • Wu Xiaodong

    (University of North Carolina at Chapel Hill)

Abstract

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.

Suggested Citation

  • Wu Xiaodong, 2003. "Pollution Havens and the Regulation of Multinationals with Asymmetric Information," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, December.
    • Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:2:n:1
    DOI: 10.2202/1538-0645.1265
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    References listed on IDEAS

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    1. Anonymous, 0. "Increasing Understanding Of Public Problems And Policies 1997; An Executive Summary; Highlights Of The 1997 National Public Policy Education Conference, Charleston, Sc, September 21-24, 1997," Increasing Understanding of Public Problems and Policies, Farm Foundation.
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    Cited by:

    1. Silva, Emilson C.D. & Zhu, Xie, 2009. "Emissions trading of global and local pollutants, pollution havens and free riding," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 169-182, September.
    2. Burnett, Johann Caro & Carrasco, Vinicius, 2011. "Coordination and the provision of incentives to a common regulated firm," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 606-627, September.
    3. Zhimin Zhou & Xinyue Ye & Xiangyu Ge, 2017. "The Impacts of Technical Progress on Sulfur Dioxide Kuznets Curve in China: A Spatial Panel Data Approach," Sustainability, MDPI, vol. 9(4), pages 1-27, April.
    4. Xu, Tao, 2018. "Investigating Environmental Kuznets Curve in China–Aggregation bias and policy implications," Energy Policy, Elsevier, vol. 114(C), pages 315-322.
    5. Dinda, Soumyananda, 2004. "Environmental Kuznets Curve Hypothesis: A Survey," Ecological Economics, Elsevier, vol. 49(4), pages 431-455, August.

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