Location decisions of a polluting firm and the time consistency of environmental policy |
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| Institution: | 1. Graduate School of Agriculture, Kyoto University, Kitashirakawa-oiwake-cho, Sakyo-ku, Kyoto, Kyoto 606-8502, Japan;2. Faculty of Life and Environmental Science, Shimane University, Nishikawatsu-cho 1060, Matsue, Shimane 690-8504, Japan;3. Research Fellow of Japan Society for the Promotion of Science, Japan;1. Fachbereich Mathematik, Technische Universität Kaiserslautern, Erwin-Schrödinger Straße, 67653 Kaiserslautern, Germany;2. Fachgruppe Stochastik am Mathematischen Seminar, Christian-Albrechts-Universität zu Kiel, Ludewig-Meyn-Straße 4, 24098 Kiel, Germany;3. Department of Mathematics, SPST, University of Hamburg, Bundesstrasse 55, 20146 Hamburg, Germany;4. School of Mathematical Sciences, Dublin City University, Dublin 9, Ireland;1. Institute of Applied Mathematics, Academy of Mathematics and Systems Sciences, Academia Sinica, PR China;2. Institute of Mathematics, Jagiellonian University, ?ojasiewicza 6, 30-348 Kraków, Poland;3. Department of Mathematics, Faculty of Science and Technology, University of Macau, Av. Padre Tomás Pereira, Taipa Macau, China |
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| Abstract: | This paper considers location decisions of a monopolist, who faces a tax on its emissions in the home country, under ex post that is, time consistent, and ex ante, that is precommitment, environmental policies. We show that the monopolist will relocate more often under ex post optimal emission taxes. A government which cannot commit to an ex ante emission tax and sets its tax ex post after abatement effort has been chosen, is unable to affect the monopolist’s location decision, because it cannot commit to strategically reduce its tax level in the first stage. Domestic welfare is often higher under ex post emission taxes whenever the monopolist relocates under both policy regimes. Otherwise, welfare is higher under government commitment to an ex ante emission tax level. Thus, government commitment to a policy is not always welfare improving. |
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