Shadow prices, environmental stringency, and international competitiveness |
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Authors: | Daan P. van Soest Tim Jeppesen |
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Affiliation: | a Department of Economics and CentER, Tilburg University, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands b University of Maryland, 2200 Symons Hall, College Park, MD 20742-5535, USA c NBER, Cambridge, MA, USA d Kommunernes Revision, Oestre Stationsvej 43, 5000 Odense C, Denmark |
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Abstract: | Empirical tests of the relationship between international competitiveness and the severity of environmental regulations are hampered by the lack of pollution abatement cost data for non-U.S. countries. The theory of the firm suggests that environmental stringency can be measured by the difference between a polluting input's shadow price and its market price. We make a first attempt at quantifying such a measure for two industries located in nine European OECD countries. Overall, we provide (i) a new approach to measure cross-country regulatory differences in that we use a theoretically attractive measure of industry-specific private compliance cost, and (ii) empirical estimates that are an attractive tool for researchers and policymakers who are interested in examining how economic activity is influenced by compliance costs. |
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Keywords: | H73 Q28 R38 |
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