Environmental Policy, Firm Location, And Product Differentiation: The Role of Green Preferences and Inter-firm Pollution

Michael Kuhn

No 6, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics

Abstract: Endogenous firm location is analyzed in a discrete two-region-two-firm model of product differentiation. In a non-cooperative game, two regional governments first decide on the imposition (or lifting) of domestic production standards; firms then choose technology (clean or polluting), location and price. Equilibrium quality and location structure are determined analytically. The existence of consumers willing to pay a premium on clean production methods, and the possibility of inter-firm pollution alleviate the tendency of firms to delocate into the region with the weaker regulation; then, a deregulatory race to the bottom is less likely.

Keywords: environmental policy; product differentiation; firm location; institutional competi-tion; green preferences (search for similar items in EconPapers)
JEL-codes: H73 L13 Q28 (search for similar items in EconPapers)
Date: 1997
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