What weight should be given to environmental pollution control regulations that differ from location to location or from country to country in making facility location decisions?

Question

What will be an ideal response?

Answer 1

Environmental regulations are briefly mentioned on page 464 of the text. This question is extremely value-laden and does not lend itself to a right-or-wrong answer. Instead, it provides your students with the opportunity to impose their own values on the issue. Hence, some latitude must be taken in evaluating their responses. Some students will argue that, because of the costs of being "green," the firm has a responsibility to shareholders to locate in the most environmentally permissive location. Others will argue that the social responsibility of the firm should dominate the decision and, wherever it locates, the firm should spare no expense to be as "clean and green" as technology allows. Either case, argued well, should get some credit. A slightly more thoughtful response will look not just at current regulations but toward possible tighter regulations in the long-term future and even to the public image the firm wishes to project. An excellent response will incorporate all of these perspectives and will add the notion that by being "clean and green," a firm may actually gain competitive advantage as the environmental movement takes hold and sensitive customers become aware of the firm's environmentally responsible stance. A second type of competitive advantage might arise. If the "green" firm lobbies for the more strict pollution rules, competitors may be required to conform to tougher regulations by adopting pollution controls at inflated future prices