ENVIRONMENTAL REGULATION AND THE OPTIMAL LOCATION OF THE FIRM UNDER UNCERTAINTY

Murat Isik

No 22066, 2003 Annual meeting, July 27-30, Montreal, Canada from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: 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 decisions in the presence of environmental regulation uncertainty. An increase in the cost of the environmental regulation moves a risk-averse firm closer to the output market. An augmented input or emission tax causes the risk-averse firm to locate closer to the output market. Uncertainty about environmental regulations in the form of the abatement investment and taxes also leads a risk-averse firm to locate closer to the output market, while it does not affect a risk-neutral firm's location decisions. The results have implications for the design and implementations of environmental and other development-related policies.

Keywords: Environmental Economics and Policy; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 25
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea03:22066

DOI: 10.22004/ag.econ.22066

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