Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?
AbstractIf, in international agreements, governments âlink'' trade to environmental policy (or other issues with non-pecuniary externalities), will this promote more cooperation in both policies or will cooperation in one policy be strengthened at the expense of the other? We analyze this question in the context of self-enforcing agreements. We show that if the two policies are independent in the government's objective function then linkage -- the ability to use both policies to punish non- compliance in either individual agreement -- promotes cooperation in one policy at the expense of the other (e.g. strengthens environmental standards at the expense of higher tariffs). However, if the linked policies are not independent in the governments' objective function (e.g. a tariff on cars and an environmental tax on oil) and if these policies are strategic complements then linkage promotes more cooperation in both issues (higher environmental standards and lower tariffs) than no-linkage. The policies are strategic complements only if: (i) the production externality has cross-border effects; (ii) the weight on the externality cost is high; (iii) import competing lobbies are not âpowerful''.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 67 (2005)
Issue (Month): 1 (September)
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Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- Nuno Limão, 2002. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," International Trade 0206002, EconWPA, revised 28 Jul 2002.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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