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Inter-regional Competition, Comparative Advantage, and Environmental Federalism

Author

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  • Paul Missios

    (Department of Economics, Ryerson University, Toronto, Canada)

  • Ida Ferrara

    (DEpartment of Economics, York University, Toronto, Canada)

  • Halis Murat Yildiz

    (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

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.

Suggested Citation

  • Paul Missios & Ida Ferrara & Halis Murat Yildiz, 2011. "Inter-regional Competition, Comparative Advantage, and Environmental Federalism," Working Papers 027, Toronto Metropolitan University, Department of Economics.
    • Handle: RePEc:rye:wpaper:wp027
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    References listed on IDEAS

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    Cited by:

    1. William M. Shobe & Dallas Burtraw, 2012. "Rethinking Environmental Federalism In A Warming World," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-33.
    2. Hwang, Sanghyun, 2022. "Is There an Environmental Race to the Bottom in an Endogenous Growth Model of Interjurisdictional Competition?," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 63(1), pages 24-50, June.

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    More about this item

    Keywords

    environmental policy; federalism; centralism; public economics;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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