TY - JOUR
T1 - Global Externalities, Local Policies, and Firm Selection
AU - Ahlvik, Lassi
AU - Liski, Matti
N1 - Funding Information:
Both authors are affiliated with the Helsinki GSE. We thank anonymous reviewers and the editor, as well as seminar participants at presentations in Athens (EAERE), Bergen, Gothenburg, Helsinki, Paris, Oslo, Torino (IEARE keynote), Toulouse (11th TSE Conference on Climate and Energy), and Zurich for valuable comments and discussion. We also thank Christoph Böhringer, Chang-Koo Chi, Baran Doda, Bård Harstad, Torfinn Harding, Daniel Hauser, Johannes Hörner, Yuanhao Li, Jussi Lintunen, Juan-Pablo Montero, Matias Pietola, Knut Einar Rosendahl, Julia Salmi, Thomas Sterner, Morten Sthre, Juuso Vålimåki, Ulrich Wagner, Po Yin Wong, and Andrey Zhukov for valuable comments and discussions. Lassi thanks support by Formas—a Swedish Research Council for Sustainable Development (Dnr: 2020-00174). Matti is grateful for funding from the Academy of Finland program New Energy, and from the Finnish Cultural Foundation.
Publisher Copyright:
© 2022 The Author(s) 2022. Published by Oxford University Press on behalf of European Economic Association.
PY - 2022/6
Y1 - 2022/6
N2 - How to fight global problems with local tools? When only firms know what externality-producing activities can be relocated, policies shape the location distribution of firm types with different social values. We find that, because of this selection effect, the optimal local policies confront firms' mobility with elevated corrective externality prices, in contrast with the common remedies for the relocation risk. Our mechanism incentivizes also moving firms to limit the externality, and it influences strategically the distribution of moving firms that comply with policies elsewhere. The magnitude of these effects is illustrated by a quantification for the key sectors in the European Union emissions trading system.
AB - How to fight global problems with local tools? When only firms know what externality-producing activities can be relocated, policies shape the location distribution of firm types with different social values. We find that, because of this selection effect, the optimal local policies confront firms' mobility with elevated corrective externality prices, in contrast with the common remedies for the relocation risk. Our mechanism incentivizes also moving firms to limit the externality, and it influences strategically the distribution of moving firms that comply with policies elsewhere. The magnitude of these effects is illustrated by a quantification for the key sectors in the European Union emissions trading system.
UR - http://www.scopus.com/inward/record.url?scp=85133386183&partnerID=8YFLogxK
U2 - 10.1093/jeea/jvac001
DO - 10.1093/jeea/jvac001
M3 - Article
AN - SCOPUS:85133386183
SN - 1542-4766
VL - 20
SP - 1231
EP - 1275
JO - Journal of the European Economic Association
JF - Journal of the European Economic Association
IS - 3
ER -