Locational Competition and the Environment: Should Countries Harmonize Their Environmental Policies?
In debates about economic uniﬁcation or trade liberalization, it is often asked whether harmonization should go beyond taxes and macroeconomic policies to include regulations, particularly environmental policy. This issue also arises when countries, states, and cities engage in competition for plants, jobs, or exports in what we might call “locational competition.” This essay analyzes locational competition with particular reference to environmental policy. The conclusions are the following: First, economic eﬀiciency requires harmonization of policies for global environmental issues; second, for local public goods or externalities, there is a strong presumptive case against harmonization; and ﬁnally that a competitive “race to the bottom” in environmental policies is inconsistent with countries’ following their own economic self-interests.
Nordhaus, William D., "Locational Competition and the Environment: Should Countries Harmonize Their Environmental Policies?" (2004). Cowles Foundation Discussion Papers. 1322.