Journal
JOURNAL OF ENVIRONMENTAL ECONOMICS AND MANAGEMENT
Volume 68, Issue 1, Pages 46-53Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.jeem.2014.04.001
Keywords
Fiscal federalism; Environmental spillovers; Abatement; Environmental policy
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It is generally accepted that decentralized policy choice in the presence of interjurisdictional spillovers is inefficient. Strikingly, Ogawa and Wildasin (2009) find that in a model with heterogenous jurisdictions, interjurisdictional capital flows, and interjurisdictional environmental damage spillovers, decentralized planning outcomes are equivalent to that under a centralized planner. We first show the critical importance of two key assumptions (no retirement of capital, fixed environmental damages per unit of capital) in obtaining this result. Second, we consider a more general model allowing for capital retirement and abatement activities and show that the outcome of a decentralized market generally differs from the solution of a centralized planner's social welfare-maximizing problem. (C) 2014 Elsevier Inc. All rights reserved.
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