Essays on environmental policy, plant location and financial liability

Abstract

Two major topics of discussion in the environmental economics literature are the international dimension of environmental policies and whether governments should impose strict joint liability on firms and their lenders for the environmental damage firms have caused. This thesis tries to make a contribution to these two topics by modelling multi-stage games of firms' location decisions and governments' strategic environmental policies, and by assessing empirically the impacts that a joint liability legislation enacted in the USA has had on firms' capital structure. Three chapters of the thesis are devoted to analysing the lines between trade and environment and two chapters are devoted to analysing firms' capital structure and the impacts of environmental legislation on it. In Chapter 1 I briefly introduce the two topics. Chapter 2 surveys the literature on the impacts of trade liberalism and free capital movements on environmental policies. In chapter 3 firms' location decisions and governments' environmental policies are analysed when there are incentives for agglomeration. The main implications are that there may exist a threshold in the environmental policy beyond which a country may lose its industrial base. There may be hysteresis effects in environmental policies, and last governments' competition to attract/deter plant location may cause environmental dumping, but it may cause also 'NIMBY'. Chapter 4 addresses the issue of move structure in these types of games. In the paper two main types of game structures are compared: in the Market Share Game firms locate before governments set environmental policies and in the Location Game firms locate after governments set environmental policies. It turned out that this issue must be distinguished from another issue which is the number of instruments in the Location Game. It is shown that the extent of environmental dumping in the Market Share Game may be greater or less than in the Location Game, and that there is more environmental dumping in the Location Game when governments use a single instrument than when they condition their instruments on the number of firms that locate in the country.

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