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Voluntary Environmental Agreements vs. Emission Taxes in Strategic Trade Models

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  • Klaus Conrad

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    Abstract

    The purpose of the paper is to narrow the gap between the widespread use of voluntary agreements and research on the rationale of such approaches. A topical example are voluntary agreements of many industries to reduce carbon dioxide emissions because of global warming. If the industry anticipates that taxes and fees will be introduced in the coming years, it seems rational to act in advance in order to mitigate the tax levels. The conventional approach in strategic trade and tax models was to look at a two-stage game where governments set taxes first and then firms react. In such a policy regime the government is concerned about the international competitiveness of its firms and sets taxes below marginal damages. In this paper, we consider a policy regime with a reversed timing. Firms commit themselves in the face of emission taxes to abatement efforts and to lower levels of the environmentally intensive output. Then the government introduces the tax. Under this timing of strategies the tax is equal to marginal damage. Firms waive profit and reduce output in order to use less of the polluting input. The reward for this behavior will be a less strict use of policy instruments and hence lower abatement costs in the near future. Copyright Kluwer Academic Publishers 2001

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    File URL: http://hdl.handle.net/10.1023/A:1011683702569
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    Bibliographic Info

    Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

    Volume (Year): 19 (2001)
    Issue (Month): 4 (August)
    Pages: 361-381

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    Handle: RePEc:kap:enreec:v:19:y:2001:i:4:p:361-381

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    Web page: http://www.springerlink.com/link.asp?id=100263

    Related research

    Keywords: emission taxes; environmental policy; strategic trade policy; voluntary agreements;

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    1. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
    2. Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
    3. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
    4. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
    5. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
    6. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
    7. Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
    8. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
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    Cited by:
    1. Delacote, Philippe & Montagné-Huck, Claire, 2012. "Political consumerism and public policy: Good complements against market failures?," Ecological Economics, Elsevier, vol. 73(C), pages 188-193.
    2. Takeshi Iida & Kenji Takeuchi, 2010. "Policy-Induced Environmental Technology Transfer," Discussion Papers 1008, Graduate School of Economics, Kobe University.
    3. ISHIKAWA Jota & OKUBO Toshihiro, 2010. "Environmental Standards under International Oligopoly," Discussion papers 10018, Research Institute of Economy, Trade and Industry (RIETI).
    4. Takeshi Iida & Kenji Takeuchi, 2011. "Does free trade promote environmental technology transfer?," Journal of Economics, Springer, vol. 104(2), pages 159-190, October.
    5. Jinji, Naoto, 2005. "Strategic Environmental and Trade Policies with Corporate Environmentalism," Discussion Papers 2004-10, Graduate School of Economics, Hitotsubashi University.
    6. David M. McEvoy & John K. Stranlund, 2007. "Costly Enforcement of Voluntary Environmental Agreements with Industries," Working Papers 2007-11, University of Massachusetts Amherst, Department of Resource Economics.
    7. Requate, Till, 2005. "Environmental Policy under Imperfect Competition : A Survey," Economics Working Papers 2005,12, Christian-Albrechts-University of Kiel, Department of Economics.
    8. David McEvoy & John Stranlund, 2010. "Costly Enforcement of Voluntary Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 47(1), pages 45-63, September.
    9. Csordas, Stefan, 2009. "The global welfare effects of international environmental cooperation," MPRA Paper 20787, University Library of Munich, Germany.

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