Bouwe R. Dijkstra

Environmental Regulation: An Incentive for Foreign Direct Investment

Empirical evidence has so far failed to confirm that lenient environmental regulation attracts investment from polluting firms. In a Cournot duopoly with a foreign firm and a domestic firm, we show that the foreign firm may want to relocate to the domestic country with stricter environmental regulation, when the move raises its rival domestic firms cost by sufficiently more than its own. The domestic (foreign) countrys welfare is (usually) lower with foreign direct investment.

Cooperation by way of support in a rent seeking contest for a public good

Abstract This paper analyzes the efforts made to influence a decision that can have two outcomes. First, the agents on the same side designate an agent to play the contest for them. The inactive agents can then decide to support this active agent, i.e. pay a percentage of his effort. It is optimal to designate either the agent with the lowest stake (who will receive support from everyone else) or the agent with the highest stake (who will not receive support) as the active agent. We find that the side with the higher aggregate stake may have the lower success probability.

Direct regulation of a mobile polluting firm

Abstract We compare noncooperative regional environmental policy to cooperative national policy for direct regulation of a mobile firm. The national government can always reach its first best with commitment, but not with time-consistent policy. With commitment, regional policy results in a game of chicken with too little output or in “not in my backyard”. Without commitment, regional policy may improve upon national policy. This happens when regional policy discourages the investment, whereas the welfare-reducing investment does take place with national policy.

Group Rewards and Individual Sanctions in Environmental Policy

We examine an incentive scheme for a group of agents, where all agents are rewarded if the group meets its target. If the group does not meet its target, only the agents that meet their individual target are rewarded. In environmental policy, the EU burden sharing agreement and the UK Climate Change Agreements feature this incentive scheme. There is only a difference in outcome between group and individual rewards if emissions are stochastic. Group rewards generally lead to higher expected emissions than individual rewards. The attraction of the group reward scheme may lie in its fairness and its tough-looking targets.

Environmental Regulation: An Incentive for FDI

Empirical evidence has so far failed to find firm support for the Pollution Haven Hypothesis that lenient environmental regulation attracts investment from polluting firms. We show that a firm may want to relocate to a country with stricter environmental regulation, when the move raises its rivals cost by sufficiently more than its own. We model a Cournot duopoly with a foreign and an incumbent domestic firm. When the foreign firm moves to the home country, the domestic government will respond by increasing the environmental tax rate. This may hurt the domestic firm more than the foreign firm thus making it profitable for the foreign firm to relocate rather than to export.

Showdown in Schönau: A Contest Case Study

This chapter analyzes a referendum campaign as a case study of a contest. The referendum, held in 1996 in the small German town of Schonau, led to the replacement of the conventional electricity supplier by a firm founded by the local environmentalists. We discuss both qualitative aspects (activities, arguments and strategies of the environmentalists, the electricity firm and its local allies) and quantitative aspects (lobbying effectiveness, stakes, effort and success probability). We identify voter groups more inclined to vote one way or the other and factors that contributed to the environmentalists’ victory. Finally, we discuss modeling implications.

Political Competition, Rent Seeking and the Choice of Environmental Policy Instruments: Comment

In this comment, I analyze Damanias political economy model (Environmental and Resource Economics 13: 415–433, 1999), correcting some flaws and clarifying some ambiguities. I arguethat the political parties are identical at the outset of the game. Onlyafter the parties have chosen the instrument (standards or taxation) and thestrictness of environmental policy do the environmentalists and thepolluting firms know which party to support in the election campaign. Inequilibrium, both parties choose the same platform, so that both have anequal probability of winning the election.

Environmental policy with endogenous domestic and trade policies: comment on Schleich: "Environmental quality with endogenous domestic and trade policies" [Eur. J. Political Economy 15 (1999) 53-71]

Abstract In this comment on Schleich [Eur. J. Polit. Econ. 15 (1999) 53], I point out that in the political equilibrium with organized polluters, environmental quality cannot exceed the socially optimal level. I also derive the general condition under which trade policy yields more environmental protection than domestic policy.

Industry Preferences for Instruments of Environmental Policy

Although economists have shown that market instruments outperform direct regulation, environmental policy still consists mainly of direct regulation. One reason for this could be that powerful interest groups prefer direct regulation. Following Buchanan and Tullock (1975), Dewees (1983), and Spulber (1985, 1989), this paper studies restriction of emissions in a perfectly competitive industry. The instruments reviewed are: tradeable emission permits, (grandfathered and auctioned), emissions charges, firm bubbles (restriction of emissions per firm), and performance standards (restriction of emissions per unit of output). The paper offers a comprehensive review of the short run and long run effects of these instruments on, inter alia, profits, employment and product price. These are key variables which are of importance for shareholders, workers and consumers. We conclude that all three interest groups rank an auction of tradeable permits and emissions charges lowest. Shareholders rank grandfathering high est. Consumers rank standards highest. Workers rank standards or bubbles highest.