The Demands for Environmental Regulation and for Trade in the Presence of Private Mitigation
AbstractWe study the nature of individual demands for environmental regulation and for trade openness in the general equilibrium of a small open economy where the environment is an input to production. Differences in the ability of individuals to afford private mitigation of the adverse consequences of pollution is a central feature of the analysis. Private mitigation leads to an endogenous, unequal distribution of the health-related consequences of pollution across income groups in a manner consistent with epidemiologic studies, in contrast to much of the literature which assumes equal health effects for all. We show that when private mitigation is possible at a cost, trade polarizes the interests of rich and poor with respect to the stringency of regulation. Moreover, even though trade has the potential to benefit everyone, the poor may oppose trade openness because of a concern that laxer environmental regulation will then be imposed in the interest of the rich. We explain why heterogeneity in the intensity of preferences, and not just in their direction, is likely to play a role in the determination of collective choices with respect to the regulation of the environment and of trade. We conclude by drawing out the implications of the analysis for the study of the political economy of the environment-trade-welfare nexus.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2509.
Date of creation: 2008
Date of revision:
regulation; environment; pollution; private mitigation; trade; welfare; health; collective choice;
Other versions of this item:
- Louis Hotte & Stanley L. Winer, 2008. "The Demands for Environmental Regulation and for Trade in the Presence of Private Mitigation," Working Papers 0810E, University of Ottawa, Department of Economics.
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- F18 - International Economics - - Trade - - - Trade and Environment
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
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