Interregional competition, comparative advantage and environmental federalism

Ida Ferrara, Paul Missios and Halis Yildiz

Canadian Journal of Economics, 2014, vol. 47, issue 3, 905-952

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 tworegion, twogood model with interregional 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.

JEL-codes: H41 H77 Q56 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Inter-regional Competition, Comparative Advantage, and Environmental Federalism (2011)
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