Oligopolistic eco-industries with free entry and trade liberalization of environmental goods (original) (raw)
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Privredna izgradnja, 2003
This paper is only a first step towards an understanding of the effects of strategic environmental policy. Even the simple framework developed here provides interesting insights. As the precedent analysis has made clear, the optimal pollution policy under domestic distortions can be decomposed into a "domestic output effect", a "trade effect", and a "pollution effect". The "domestic output effect" captures the change in welfare coming from a change in domestic firms sale, the "trade effect" captures the change in welfare coming from a change in the level of imports, while the "pollution effect" captures the negative effect on welfare of domestic emissions. Then, the optimal pollution policy can imply a tax or subsidy for the domestic industry, which will depend on the specific characteristics of a given economy. This result emphasizes the idea, as is well known, that the outcomes for the case of one distortion do not hold i...
Hitotsubashi Journal of Economics, 2007
The purpose of this research is to examine strategic incentives to distort the use of pollution taxes on intermediate-good production in a successively oligopoly model where both intermediate-good and final-good trade exist. Since the rent capture e#ects of the pollution tax, which depends on the trans-boundary externality(a), operate in opposite directions in the upstream and downstream sectors, the non-cooperative pollution tax level can be stricter or laxer than the cooperative tax level in accordance with the magnitude of the trans-boundary externality(a). If a is relatively small (resp. large), then the non-cooperative pollution tax is necessarily over-corrected (resp. under-corrected) in terms of world welfare. Moreover we also investigate the e#ect of trade liberalization on the equilibrium pollution tax.
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This paper designs a reciprocal dumping model to address the control of industrial pollution between two trading partners. Firms generate transboundary pollution from production and environmental taxes represent the pollution control instrument. We ask whether environmental taxes implemented in a non-cooperative setting are more stringent than the globally efficient level. Relative to the globally efficient case, we find in the linear Markov Perfect Nash Equilibrium (MPNE) context that the tax rate for both countries is smaller and individual emissions are larger. However, these results may not hold in the non-linear MPNE case depending on market structure and environmental conditions. Unlike the symmetric equilibrium case, the tax rates are always discontinuous under asymmetric MPNEs. The asymmetric equilibrium scenario can give rise to higher individual payoffs relative to the symmetric equilibrium case.
Strategic Environmental Policy under Free Trade with Transboundary Pollution
Review of Development Economics, 2011
We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in a race to the bottom in environmental taxes, which makes both countries worse off. This is not due to the terms of trade motive, but rather the incentive, in a strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. Under free trade, internationally nontradable quotas result in the lowest pollution level and strictly welfare-dominate taxes. The ordering of internationally tradable quotas and pollution taxes depends, among other things, on the degree of international pollution spillovers. JEL classification codes: F18, Q56, H23, D62.