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Environmental regulation and the optimal location of the risk-averse firm under uncertainty

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  • ISIK, MURAT

Abstract

The interrelationships between environmental regulations and firm location are essential features of economic development. This paper examines the optimal location of a competitive firm in response to environmental costs imposed by the abatement investment and taxes when the cost of the environmental regulation varies spatially under uncertainty. It contributes to the literature by incorporating the spatial setting into a risk-averse firm's location decision in the presence of environmental regulation uncertainty. An augmented cost of the abatement, input tax, or emission tax causes the risk-averse firm to locate closer to the output market. Uncertainty about environmental regulations also leads a risk-averse firm to locate closer to the output market. Policy implications of the results are discussed. The results have implications for the design and implementation of environmental and other development-related policies, environment–development debate, and trade–environment debate.

Suggested Citation

  • Isik, Murat, 2005. "Environmental regulation and the optimal location of the risk-averse firm under uncertainty," Environment and Development Economics, Cambridge University Press, vol. 10(4), pages 435-452, August.
    • Handle: RePEc:cup:endeec:v:10:y:2005:i:04:p:435-452_00
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    Cited by:

    1. Kenichi SHIMAMOTO, 2016. "Effects Of Environmental Regulations On Pollution Reduction And Firm Location," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 65-76, December.
    2. López-Gamero, María D. & Claver-Cortés, Enrique & Molina-Azorín, José F., 2009. "Evaluating environmental regulation in Spain using process control and preventive techniques," European Journal of Operational Research, Elsevier, vol. 195(2), pages 497-518, June.
    3. Kenichi SHIMAMOTO, 2016. "Effects Of Environmental Regulations On Pollution Reduction And Firm Location," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 65-76, December.
    4. Estay, Manuel & Stranlund, John K., 2022. "Entry, location, and optimal environmental policies," Resource and Energy Economics, Elsevier, vol. 70(C).
    5. Roland Kirstein, 2009. "Risk-Neutral Monopolists are Variance-Averse," FEMM Working Papers 09012, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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