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Tradable Permits vs Ecological Dumping

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Author Info

  • Phoebe Koundouri

    (Dept. of International and European Economic Studies, Athens University of Economics and Business)

  • Fabio Antoniou

    ()
    (Athens University of Economics and Business)

  • Panos Hatzipanayotou

    ()
    (Athens University of Economics and Business)

Abstract

In this paper we examine an alternative policy scenario, where governments allow polluting Ã??rms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting Ã??rms and countries since the prisonersÃ??dilemma is moderated.

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Bibliographic Info

Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1002.

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Length: 28 pages
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:aue:wpaper:1002

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Related research

Keywords: Strategic environmental policy; Tradable permits; Race to the top;

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References

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  1. J. Peter Neary, 2000. "International Trade and the Environment - Theoretical and Policy Linkages," Working Papers 200018, School Of Economics, University College Dublin.
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  8. Rose, Adam & Peterson, Thomas D. & Zhang, ZhongXiang, 2006. "Regional carbon dioxide permit trading in the United States: coalition choices for Pennsylvania," MPRA Paper 13547, University Library of Munich, Germany.
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  17. Eftichios Sartzetakis, 1997. "Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 65-81, January.
  18. 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.
  19. Fredriksson, Per G. & Millimet, Daniel L., 2002. "Strategic Interaction and the Determination of Environmental Policy across U.S. States," Journal of Urban Economics, Elsevier, vol. 51(1), pages 101-122, January.
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  22. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
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