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Location choice by households and polluting firms: An evolutionary approach

Citation
Dijkstra BR & de Vries F (2006) Location choice by households and polluting firms: An evolutionary approach, European Economic Review, 50 (2), pp. 425-446.

Abstract
This paper examines several policy regimes to deal with the problem of households suffering from environmental damage by firms in the same region. We employ an evolutionary framework to analyze migration movements in the course of time, since firms and households will not relocate immediately in response to payoff differentials. We show that taxation gives firms and households an incentive to stay away from each other. Laissez faire (compensation) only gives households (firms) an incentive to stay away from firms (households). We find that taxation creates the right incentives to reach a local welfare maximum. However, when there are multiple local maxima, circumstances may arise under which compensation leads to a better outcome than taxation.

Keywords
environmental policy; location choice; evolutionary game theory

StatusPublished
AuthorsDijkstra Bouwe R, de Vries Frans
Publication date02/2006
PublisherElsevier
ISSN 0014-2921
LanguageEnglish

Journal
European Economic Review: Volume 50, Issue 2 (FEB 2006)

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