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Barigozzi, Francesca

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Ludwig, Sandra / Schmitz, Hendrik

Ed. by Auriol, Emmanuelle / Brunner, Johann / Fleck, Robert / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias / Zulehner, Christine

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Volume 3, Issue 2


Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Pollution Havens and the Regulation of Multinationals with Asymmetric Information

Xiaodong Wu
Published Online: 2003-12-31 | DOI: https://doi.org/10.2202/1538-0645.1265


This paper develops a common agency model to analyze the strategic interaction between governments in regulating polluting multinationals. We show that when a firm has private information about its production technology relating output to pollution that is difficult to monitor, the information rent extraction behavior of non-cooperative governments will work against the "pollution haven" hypothesis in a Nash equilibrium with or without pooling. The "pollution haven" result is more likely to be reversed in a separating equilibrium than in a pooling equilibrium as a firm's output is further away from the most efficient outcome. This result provides an explanation for why many empirical studies do not support the "pollution haven" hypothesis even after controlling for private non-environmental cost differentials.

Keywords: multinational corporations; environmental regulation; common agency

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Published Online: 2003-12-31

Citation Information: Contributions in Economic Analysis & Policy, Volume 3, Issue 2, ISSN (Online) 1538-0645, DOI: https://doi.org/10.2202/1538-0645.1265.

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