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“Pollution Havens” and the Regulation of Multinationals by Multiple Governments

By Xiaodong Wu


This paper develops a common agency model to analyze the strategic interaction between governments in regulating “dirty” multinational firms. These firms possess private information about the degree of pollution associated with their production technologies. The study shows that the strategic behavior between non-cooperative governments, as a result of asymmetric information, works against the “pollution haven” hypothesis. The paper highlights the importance of factors that can dominate environmental costs in a government’s welfare maximization decision rather than those in a firm’s profit maximization decision. The paper also draw implications on the empirical studies of the “pollution haven” hypothesis

Topics: pollution haven, multinationals, common agency
Year: 2000
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