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Environmental regulation and the optimal location of the risk-averse firm under uncertainty

Published online by Cambridge University Press:  18 July 2005

MURAT ISIK
MURAT ISIK
Affiliation:
Department of Agricultural Economics and Rural Sociology, University of Idaho, 28B Ag Science Building, Moscow, ID 83844, USA. Tel: 208-885-7214. Fax: 208-885-5759. E-mail: misik@uidaho.edu
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Abstract

The interrelationships between environmental regulations and firm location are essential features of economic development. 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 decision in the presence of environmental regulation uncertainty. An augmented cost of the abatement, input tax, or emission tax causes the risk-averse firm to locate closer to the output market. Uncertainty about environmental regulations also leads a risk-averse firm to locate closer to the output market. Policy implications of the results are discussed. The results have implications for the design and implementation of environmental and other development-related policies, environment–development debate, and trade–environment debate.

Type
Research Article
Information
Environment and Development Economics , Volume 10 , Issue 4 , August 2005 , pp. 435 - 452
Copyright
© 2005 Cambridge University Press

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