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International Trade Rules and Environmental Cooperation under Asymmetric Information

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Author Info
Ludema, Rodney D
Wooton, Ian

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Abstract

With asymmetric information about local costs relative to international benefits of direct environmental policy, countries will rely too heavily on trade policy in controlling cross-border externalities in negotiated agreements. The unilateral externality policy chosen before negotiations by an exporter provides a signal about its local cost, modifying the information used in negotiations. The greater the exporter's incentive to use an externality tax as a second-best trade instrument, the better the signal. Consequently, exogenous limits on the unilateral use of trade policy in the absence of environmental cooperation can diminish the informational problem and improve the performance of prospective environmental agreements. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 38 (1997)
Issue (Month): 3 (August)
Pages: 605-25
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Handle: RePEc:ier:iecrev:v:38:y:1997:i:3:p:605-25

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  1. Panos Hatzipanayotou & Sajal Lahiri & Michael S. Michael, 2000. "Can Cross-Border Pollution Reduce Pollution?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Panos Hatzipanayotou & Sajal Lahiri & Michael S. Michael, 2002. "Reforms of Environmental Policies in the Presence of Cross-border Pollution and Two-stage Clean-up," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. M. Ozgur Kayalica & Olgay Kayalica, 2005. "Transboundary Pollution From Consumption In A Reciprocal Dumping Model," Global Economy Journal, Berkeley Electronic Press, vol. 5(2). [Downloadable!]
  4. Panos Hatzipanayotou & Sajal Lahiri & Michael Michael, 2008. "Cross-Border Pollution, Terms of Trade, and Welfare," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(3), pages 327-345, November. [Downloadable!] (restricted)
  5. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2004. "Pollution and Capital Tax Competition within a Regional Block," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Hadjiyiannis, Costas & Hatzipanayotou, Panos & Michael, Michael S., 2002. "Optimal Tax Policies with Private-Public Clean-Up, Cross-Border Pollution and Capital Mobility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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