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Transboundary Natural Resources, Externalities, and Firm Preferences for Regulation

  • Sherzod B. Akhundjanov
  • Felix Muñoz-García
Article

Abstract

This paper analyzes a common property resource shared by two countries in the presence of two forms of bilateral externalities: the tragedy of the commons and the environmental damage resulting from the exploitation of the resource. We demonstrate that both cooperative and non-cooperative forms of regulation produce a negative effect on firms’ profits, as they increase firms’ unit production costs. However, regulation can also entail a positive effect on profits by mitigating industry overproduction. We show that the magnitude of these two effects depends not only on the type of regulatory instrument, but also on the rate of resource extraction and the environmental damage in each country. We identify conditions under which the positive effect of regulation dominates its negative effect, thus increasing firms’ profits and ultimately incentivizing them to support the introduction of regulation, either at the national or international level.

Keywords

Common property resource Bilateral externalities Transboundary externalities 

JEL Classification

H23 Q38 C71 C72 

Notes

Acknowledgements

A previous version of this paper was circulated under the title “Multicountry Appropriation of the Commons, Externalities, and Firm Preferences for Regulation.” We thank the co-editor, two anonymous reviewers, and the participants of the 11th Econometric Society World Congress, the 91th Western Economic Association International conference, and Agricultural and Applied Economics Association meeting for valuable comments and suggestions. This research is supported by the Utah Agricultural Experiment Station, Utah State University, and approved as journal paper number 9066. See the online appendix for supplementary materials and proofs.

Supplementary material

10640_2018_265_MOESM1_ESM.pdf (288 kb)
Supplementary material 1 (pdf 287 KB)

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Copyright information

© Springer Nature B.V. 2018

Authors and Affiliations

  1. 1.Department of Applied EconomicsUtah State UniversityLoganUSA
  2. 2.School of Economic SciencesWashington State UniversityPullmanUSA

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