Template-Type: ReDIF-Paper 1.0
Author-Name: Paul Missios
Author-X-Name-First: Paul
Author-X-Name-Last: Missios
Author-Email: pmissios@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Author-Name: Ida Ferrara
Author-X-Name-First: Ida
Author-X-Name-Last: Ferrara
Author-Email: iferrara@yorku.ca
Author-Workplace-Name: DEpartment of Economics, York University, Toronto, Canada
Author-Name: Halis Murat Yildiz
Author-X-Name-First: Halis
Author-X-Name-Last: Yildiz
Author-Email: hyildiz@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: Inter-regional Competition, Comparative Advantage, and Environmental Federalism
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.
Classification-JEL: D10, H23, Q28
Keywords: environmental policy; federalism; centralism; public economics
Length: 41 pages
Creation-Date: 2011-01
Number: 027
File-URL: http://economics.ryerson.ca/workingpapers/wp027.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp027