Environmental policy and firms' decision making about location choice - Application of a decision-making model to the case of a fertilizer plant

Firm-level decision making is a process in which multiple actors are involved with partly diverging interests, multiple objectives, and incomplete information. This chapter presents an existing process-oriented model, the "Conflict Model" developed by Bueno de Mesquita, which can be used to model such decision making processes and predict their outcomes. It is argued that decision-making as a reaction to environmental regulations can be better understood by paying attention to the social influence processes between the social and economic actors involved. As a case study, this Conflict Model is applied to decision making in a multinational about how to proceed with a certain fertilizer production plant in view of developments in the industry and increasingly tight environmental regulations. An initial analysis led to model this process as one in which eight actors are involved and where the crucial decision is dichotomous (whether or not to build a gypsum reworking plant). The model correctly predicted that the gypsum reworking plant would not be realized.