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Endogenous Timing in Strategic Environmental Policymaking

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  • Keisuke Hattori

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  • Takahiro Kitamura

Abstract

In this paper, we endogenize the timing of policymaking in a simple two-country model of strategic environmental policy. We consider a timing game in which two policymakers non-cooperatively decide their preferred sequence of moves before setting emission tax rates. We show that whether the policymakers implement emission tax policies simultaneously or sequentially crucially depends on the magnitude of environmental damages. When the damages are insignificant, the tax rates are strategic substitutes, and the simultaneous-move policymaking emerges in equilibrium. In contrast, when the damages are significant, the tax rates are strategic complements, and sequential-move policymaking emerges. We also extend the model by allowing for differences in the vulnerability to environmental damages between countries. When the differences are large, the unique equilibrium of the game is the situation where the less vulnerable country acts as a leader. In the case where multiple equilibrium emerges, the risk-dominant equilibrium is also that where the less vulnerable country leads. Copyright Springer Science+Business Media Dordrecht 2013

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File URL: http://hdl.handle.net/10.1007/s10640-012-9622-y
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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): 55 (2013)
Issue (Month): 2 (June)
Pages: 199-215

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Handle: RePEc:kap:enreec:v:55:y:2013:i:2:p:199-215

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

Related research

Keywords: Strategic environmental policy; Endogenous timing; Environmental tax; Duopoly; Q56; Q28; L13; C72;

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  1. Roelfsema, Hein, 2007. "Strategic delegation of environmental policy making," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 270-275, March.
  2. Hubert Kempf & Grégoire Rota-Graziosi, 2010. "Endogenizing leadership in the tax competition race," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00492105, HAL.
  3. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
  4. Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 768-776, October.
  5. Greaker, Mads, 2003. "Strategic environmental policy; eco-dumping or a green strategy?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 692-707, May.
  6. Grégoire ROTA-GRAZIOSI & Hubert KEMPF, 2008. "Leadership in Public Good Provision: a Timing Game Perspective," Working Papers 200817, CERDI.
  7. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  8. Amir, Rabah & Stepanova, Anna, 2006. "Second-mover advantage and price leadership in Bertrand duopoly," Games and Economic Behavior, Elsevier, vol. 55(1), pages 1-20, April.
  9. 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.
  10. Juan Carlos Bárcena-Ruiz, 2006. "Environmental Taxes and First-Mover Advantages," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 35(1), pages 19-39, September.
  11. 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.
  12. Hattori, Keisuke, 2007. "Strategic Voting for Noncooperative Environmental Policies in Open Economies," MPRA Paper 6333, University Library of Munich, Germany.
  13. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
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