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Environmental policy instruments and imperfectly competitive international trade

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  • Alistair fnUlph
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    Abstract

    Policy makers, industrialists and environmentalists express concern that the imposition of tough environmental policies in some countries displaces production, and hence pollution, to countries which impose less tough environmental policies. Yet empirical studies of such impacts suggest they are small. However, these findings are derived from models in which international trade is modelled as being perfectly competitive. In this paper I model trade as imperfectly competitive with scope for strategic behavior by producers, in this case investment in capital. I show that the choice of environmental policy instrument can have a marked impact on the incentives for producers to act strategically, with environmental standards significantly reducing the incentives for strategic overinvestment relative to environmental taxes or no environmental policy at all. Whether welfare is higher using standards or taxes depends on whether producing countries are also significant consumers of the polluting product, and on whether all producing governments act to reduce emissions or only some subset of governments. To assess the quantitative significance of these theoretical results I conduct policy simulations on a calibrated model of the world fertilizer industry. These simulations show that the impact of environmental policy on strategic behaviour can be large. Copyright Kluwer Academic Publishers 1996

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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): 7 (1996)
    Issue (Month): 4 (June)
    Pages: 333-355

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    Handle: RePEc:kap:enreec:v:7:y:1996:i:4:p:333-355

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

    Related research

    Keywords: environmental policy; pollution; strategic behaviour;

    References

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    1. John Whalley & Randall Wigle, 1991. "Cutting CO2 Emissions: The Effects of Alternative Policy Approaches," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 109-124.
    2. John Pezzey, 1992. "Analysis of Unilateral CO2 Control in the European Community and OECD," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 159-172.
    3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
    4. Jean-Marc Burniaux & John P. Martin & Giuseppe Nicoletti & Joaquim Oliveira Martins, 1992. "The Costs of Reducing CO2 Emissions: A Technical Manual," OECD Economics Department Working Papers 115, OECD Publishing.
    5. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
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    Cited by:
    1. Feenstra, Talitha & Kort, Peter M. & de Zeeuw, Aart, 2001. "Environmental policy instruments in an international duopoly with feedback investment strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 25(10), pages 1665-1687, October.
    2. Ngo Van Long & Antoine Soubeyran, 1998. "Pollution, Pigouvian Taxes, and Asymmetric International Oligopoly," CIRANO Working Papers 98s-30, CIRANO.
    3. Kiyono, Kazuharu & Ishikawa, Jota, 2011. "Environmental Management Policy under International Carbon Leakage," CCES Discussion Paper Series 45, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    4. Fredrik Carlsson, 2000. "Environmental Taxation and Strategic Commitment in Duopoly Models," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(3), pages 243-256, March.
    5. Erik Teodoor Verhoef & Peter Nijkamp, 1998. "Energy policies in spatial systems: A spatial price equilibrium approach with heterogeneous regions and endogenous technologies," ERSA conference papers ersa98p113, European Regional Science Association.
    6. Erik T Verhoef & Peter Nijkamp, 2000. "Spatial dimensions of environmental policies for transboundary externalities: a spatial price equilibrium approach," Environment and Planning A, Pion Ltd, London, vol. 32(11), pages 2033-2055, November.
    7. Feenstra, T.L., 1998. "Environmental Policy Instruments and International Rivalry: A Dynamic Analysis," Open Access publications from Tilburg University urn:nbn:nl:ui:12-76006, Tilburg University.
    8. Roy Chowdhury, Indrani, 2005. "Joint ventures, pollution and environmental policy," Working Papers 05/31, National Institute of Public Finance and Policy.
    9. Hattori, Keisuke, 2007. "Strategic Voting for Noncooperative Environmental Policies in Open Economies," MPRA Paper 6333, University Library of Munich, Germany.
    10. Requate, Till, 2005. "Environmental Policy under Imperfect Competition : A Survey," Economics Working Papers 2005,12, Christian-Albrechts-University of Kiel, Department of Economics.
    11. Erin T. Mansur, 2007. "Prices vs. Quantities: Environmental Regulation and Imperfect Competition," NBER Working Papers 13510, National Bureau of Economic Research, Inc.
    12. Ngo Van Long & Antoine Soubeyran, 2001. "Emission Taxes and Standards for an Asymmetric Oligopoly," CIRANO Working Papers 2001s-07, CIRANO.
    13. Feenstra, T.L. & Kort, P.M. & Zeeuw, A.J. de, 1997. "Environmental Policy in an International Duopoly: An Analysis of Feedback Investment Strategies," Discussion Paper 1997-43, Tilburg University, Center for Economic Research.

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