Publication: Is Better Information Always Good News? International Corporate Strategy and Regulation
Date
2012-10
ISSN
Published
2012-10
Author(s)
Kitzmuller, Markus
Abstract
This paper develops a simple model to
analyze the interaction between strategic corporate public
good provision, international firm location and national
regulation. An information-based strategic corporate public
good provision mechanism is proposed to shed light on recent
firm behavior within different regulatory environments. The
main insight derived is that in the presence of firms with
geographic flexibility (multinational enterprises) and
market provision of an international public credence good,
unilateral (non-cooperative) regulatory scope depends on (1)
the absolute probabilities to verify firms' corporate
public good provision levels within different geographic and
institutional environments, and (2) the differential between
these probabilities across countries. The relative
information asymmetry determines not only the market levels
of the public good produced under autarky, but also the
relocation incentives of multinational enterprises. A firm
trades off lower production costs, which increase its
competitiveness in pricing, with higher expected
informational price premiums, which decrease its
competitiveness. A government's ability to regulate
above market (corporate public good provision) levels
decreases with the absolute level of foreign transparency,
while it increases in the relative (positive) difference
between the same transparency at home and abroad. This may
not only explain mixed empirical evidence of theoretic
propositions such as the Pollution Haven Hypothesis and
Regulatory Race to the Bottom dynamics, but also open up
interesting policy implications as the international
information playing field becomes leveled through
development, while existing regulations are rather rigid,
and policy coordination remains limited.
Citation
“Kitzmuller, Markus. 2012. Is Better Information Always Good News? International Corporate Strategy and Regulation. Policy Research Working Paper; No. 6251. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/d6124a86-aa8c-532b-8579-eda70608267c License: CC BY 3.0 IGO.”
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