The paper highlights that the race-to-top result shown by Wellisch (J. Urban Econ. 37:290–310, <CitationRef CitationID="CR27">1995</CitationRef>) and Kunce and Shogren (J. Environ. Econ. Manage. 50:212–224, <CitationRef CitationID="CR17">2005a</CitationRef>) may be exacerbated by inter-jurisdictional commuting, leading to increased NIMBY behavior (Not-In-My-Back-Yard) among metropolitan jurisdictions. Local governments try to push polluting economic activities to the neighboring jurisdictions, while commuting guarantees their residents’ labor income. Commuting generates a leakage of the local production benefits of pollution as non-resident commuters take the wages to their home jurisdictions. Jurisdictions may thus face a prisoners’ dilemma, in which they all push for pollution levels that are too low (race-to-the-top). Fiercer competition in the common labor market due to a larger number of jurisdictions intensifies this race-to-the-top in environmental regulation; whereas transboundary pollution, local ownership of firms, pollution taxes, and payroll taxes reduce the incentive for overly restrictive pollution policies. Copyright Springer Science+Business Media, LLC 2013
