How Transport Costs and Pollution Taxes affect Location Decisions of a Firm? A Theoretical Approach

<strong>Center for International Trade and Development (JNU) </strong> departmental seminar Speaker: <strong>Gaurav Bhattacharya</strong>, PhD Candidate, CITD, JNU Title: <strong>How Transport Costs and Pollution Taxes affect Location Decisions of a Firm? A Theoretical Approach</strong> <strong>Abstract: </strong>This paper examines how transportation costs and pollution taxes both jointly determine the location of production in a spatial framework. The two distinct types of location problems dealt with are (1) location of vertical stages of production and (2) location of an industry or firm in a multi-market framework. The study extends the standard location theory by taking into account pollution taxes along with transportation costs. The results of the extended Weberian location model of vertical production structure shows that the ideal location, as predicted by Weber, may not hold true under all circumstances. Optimal location choice is driven by the nature of processing as well as differences in inter-regional pollution taxes along with transportation costs. In case of horizontal production structure, a variant of the Celic and Orbay model is used to show that a firm's location decision is driven by both transportation costs and pollution taxes, which further depend on the profit tax accruing to a region which serves as a potential host to the firm. Date: <strong>Wednesday, 16th September 2015</strong>