Rules of the corporate game“Chemical Maker Ineos Files 10 Lawsuits, Is Hit with 1” reminded me of research I did several years ago.Business entities operate within the regulations enforced by the governments in the regions where they operate. The local regulations set the “rules of the game” under which corporations compete. According to game theory, corporations will maximize their profits by operating close to the boundaries set by the local regulations. In a global economy, corporations will move their operations to locations with lower operating costs if the overall cost of producing and delivering the goods or services to the final consumer is lower than their current costs and the cost of moving the facility or goods.This explains why environmental regulations have not achieved global emission reductions. Lesser environmental regulations and lower labor costs have incentivized many industries to relocate their manufacturing facilities from developed countries with strong environmental and labor regulations to developing countries with lesser regulations.Therefore, governments both in the developed and developing countries, not corporations, have the responsibility to correct this situation. It is the right and duty of the importing countries to prevent the export of pollution and dangerous working conditions to developing countries by imposing import duties that fully monetize the cost differentials imposed by differing regulations. Environmental import duties will increase the cost of goods, but they will also improve the living conditions in developing countries.Stephen J. McGovernBear, DelawareReinventing Europe’s chemical industryThe sale of SABIC’s European assets, as reported in “SABIC to Sell US, European Assets on the
A Mon, study studied this question.