Three essays on environmental regulation: Theory and practice

In the first part of my dissertation I examine analytical issues in environmental regulation. I study the effect of ambient charge on total pollution generated from imperfect competition like the Bertrand Duopoly and the Cournot Duopoly. Two different game theoretic models have been studied using comparative statics and simulation techniques. In case of Cournot Duopoly additional assumptions regarding the technology of production of the firms in the form of constant, decreasing and increasing returns to scale have been imposed. The results show that in the case of imperfect competition introduction of or increase in ambient charge may increase total pollution from the industry due to strategic interaction between the firms.; In the second part of my dissertation I analyze an empirical issue of environmental regulation. I study the causes of relocation of firms with Standard Industrial Classification Code 36 (electrical and electronics industry) from the US to Mexico during the period 1988–1999 and the outcome of relocation on their environmental performance during the same period. Using Toxic Release Inventory (TRI) Database of the United States Environmental Protection Agency (EPA), Solunet-Infomex and the S&P Compustat databases, a list of publicly traded TRI companies with and without “maquiladoras” in Mexico was identified for the years of the study. A probit model pooled over cross section and time-series is used to determine the significant causes of relocation of the companies to Mexico. Finally, the outcome of the relocation on the environmental performance of the companies was studied for the same period using random effects panel regression model. Firms with high cost of production, large number of facilities, lower onsite release of treated waste per unit of output but higher offsite transfers of waste for storage, disposal, treatment etc per unit of output are more likely to shift to Mexico due to North American Free Trade Agreement (NAFTA). After controlling for the sample selection bias and firm-specific characteristics the analysis shows that relocation decision led to reduction in the generation of waste per unit of output of the firms in the US during the period 1988 till 1999.