Plant Locations and Environmental Regulation
WILLIAM D. GUNTHER
The 1990s are being called the "decade of the environment." Reflecting the increased public awareness of environmental issues, the U.S. Congress will probably pass the most significant and stringent amendments to the 1970 Clean Air Act in 1990. The president of the United States has publicly stated he wants to be known "as the environmental president," a political position that 20 years ago would have alienated more voters than it would have attracted. Many companies are redesigning and promoting their products as "green" goods. This revealed preference of voters for a quality environment has led to the passage of a large collection of environmental laws, regulations, guidelines, and policies by local communities, county governments, states, and national governments. This has renewed interest in the economic and spatial impact of these environmental rules on local, state, and national economies.
The basic research question is easily stated. Compliance with restrictive environmental regulations tends to raise a firm's operating costs. These differential compliance costs could create a comparative disadvantage for some locations and a comparative advantage for others. Some fear that communities, states or even nations could even create an active development policy designed to capture this induced industrial mobility.
Environmental regulations could become a catalyst for mobility. Firms may be pushed away from locations with stringent environmental regulations and associated high compliance costs and pulled to areas with more lenient regulations. The end result of such activity could be an international shift in the industrial structure of the United States as well as an intranational redistribution of industry.
The purpose of this chapter is to review the relationship between environmental regulations and location decisions and to examine the