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A Dynamic Approach to the Environmental Effects of Trade Liberalization

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  • M. Fadaee

Abstract

In this paper, we develop a two-country world di¤erential game model with a polluting firm in each country where there is transportation cost to investigate the equilibrium of the game between firms when they decide to trade or not and to see under which conditions social welfare coincides with the market equilibrium. We find out that in the static game bilateral trade is always the equilibrium for any acceptable transportation cost while in the dynamic game social planner can prevent the inefficient outcome by imposing and determining the proper amount of Pigouvian taxation.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp746.

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Date of creation: May 2011
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Handle: RePEc:bol:bodewp:wp746

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  1. Dockner Engelbert J. & Van Long Ngo, 1993. "International Pollution Control: Cooperative versus Noncooperative Strategies," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 13-29, July.
  2. Karp, Larry & Livernois, John, 1992. "On efficiency-inducing taxation for a non-renewable resource monopolist," Journal of Public Economics, Elsevier, vol. 49(2), pages 219-239, November.
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  4. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 1998. "Is Free Trade Good for the Environment?," NBER Working Papers 6707, National Bureau of Economic Research, Inc.
  5. Davide Dragone & Luca Lambertini & Arsen Palestini, 2009. "The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference," Working Paper Series 21_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
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  7. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
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  9. D. Dragone & L. Lambertini & A. Palestini, 2011. "Regulating Environmental Externalities through Public Firms: A Differential Game," Working Papers wp738, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Bergstrom, Theodore C. & Cross, John G. & Porter, Richard C., 1981. "Efficiency-inducing taxation for a monopolistically supplied depletable resource," Journal of Public Economics, Elsevier, vol. 15(1), pages 23-32, February.
  11. Kenji Fujiwara, 2009. "Why Environmentalists Resist Trade Liberalization," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 44(1), pages 71-84, September.
  12. D. Dragone & L. Lambertini & G. Leitmann & A. Palestini, 2009. "A Stochastic Optimal Control Model of Pollution Abatement," Working Papers 681, Dipartimento Scienze Economiche, Universita' di Bologna.
  13. Benchekroun, Hassan & Van Long, Ngo, 2002. "On the multiplicity of efficiency-inducing tax rules," Economics Letters, Elsevier, vol. 76(3), pages 331-336, August.
  14. Karp Larry & Livernois John, 1994. "Using Automatic Tax Changes to Control Pollution Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 38-48, July.
  15. Damania, D., 1996. "Pollution Taxes and Pollution Abatement in an Oligopoly Supergame," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 323-336, May.
  16. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
  17. Tsur, Yacov & Zemel, Amos, 2002. "The Regulation of Environmental Innovations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 242-260, September.
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