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A theory of mutual migration of polluting firms

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  • Laixun Zhao
  • Zhihao Yu
  • Yoshiko Onuma

Abstract

. Suppose that governments care about their tax revenue and local firms have some say in environmental regulations. Then, the level of employment and environmental compliance may be negotiated. We find that firms located in different countries can improve their threat‐point payoffs by mutual migration. This in turn affects the negotiated output/employment and environmental regulations, which causes profits to increase if the firm's threat‐point payoff is higher than that of the local government. The model predicts that pollution‐intensive firms or firms with highly inelastic demands are more likely to move out. Increases in the government's valuation of the environment, or in the degree of globalization also cause mutual migration of dirty firms. The effect of a government caring about consumer surplus leads to a lower pollution tax, reducing firms’ incentives to move out. JEL classification: F2, Q0 Une théorie de la migration mutuelle des entreprises polluantes. On part du postulat que les gouvernements ont intérêt à préserver leurs revenus fiscaux et que les entreprises locales ont une influence sur les réglementations environnementales. On peut alors négocier le niveau d’emploi et d’adhérence aux règlements. On découvre que les entreprises localisées dans divers pays peuvent améliorer leurs gains au point de menace efficace par des migrations mutuelles. Voilà qui affecte le résultat de la négociation entre le niveau d’output et d’emploi et les réglementations environnementales : les profits s’accroissent si l’entreprise a un gain au point de menace qui est plus grand que celui du gouvernement local. Le modèle prédit que les entreprises polluantes ou celles dont la demande est fortement inélastique sont celles qui sont susceptibles de migrer. Des accroissements dans l’évaluation de l’environnement par le gouvernement, ou dans le degré de mondialisation, entraînent aussi le départ des entreprises polluantes. L’effet d’un gouvernement qui s’intéresse au surplus au consommateur engendre une réduction de la taxe sur la pollution et réduit l’incitation de l’entreprise àémigrer.

Suggested Citation

  • Laixun Zhao & Zhihao Yu & Yoshiko Onuma, 2005. "A theory of mutual migration of polluting firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 900-918, August.
  • Handle: RePEc:wly:canjec:v:38:y:2005:i:3:p:900-918
    DOI: 10.1111/j.0008-4085.2005.00308.x
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    1. Tai-Liang Chen & Leonard Wang, 2010. "Trade liberalization and transboundary pollution in an international mixed duopoly," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 12(4), pages 187-200, December.

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    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General

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