EuroEconomica, Vol 31, No 5 (2012)

Abstract

We propose a theoretical model to analyze the provision of environmental protection activities with positive interregional externalities in order to verify whether this kind of policy is better accomplished through centralized policymaking, which implies a coordinated solution among local representatives, or by a decentralized system, whereby local authorities independently finance and implement their environmental protection policy. The research question concerns the identification of criteria on how to allocate powers and functions to environmental management at different tiers of government. Moreover, modelling interregional externalities as a mechanism contributing to lowering the cost of financing environmental policy in each region, we can allow different environmental policies across regions. Given this framework, considerations favouring either institutional setting in terms of individuals’ welfare seem to involve the interaction among these key elements: the extent of the inter-jurisdictional spillovers, the size of local jurisdictions, and the intensity of regional preferences for environmental policy.