Trade, Strategic Innovation and Strategic Environmental Policy - a General Analysis
AbstractThere has been much debate recently about the nature of environmental policy that will be set by governments concerned about the competitive advantage their industries might obtain in a world of fierce trade competition. Some claim governments will set environmental policies that are too lax, while others claim that policies will be excessively tough (in order to spur firms to innovate). Both these claims relate to the possibility that governments may distort their environmental policies for strategic reasons, and to test these claims requires modelling environmental policy in a world of imperfect competition where there are strategic gains to governments trying to manipulate markets through their environmental policies, and to producers trying to manipulate markets through their R&D decisions.There is now a considerable literature which adapts the literature on strategic international trade to include environmental policy, but this literature suffers from some limitations. Most of the models consider the cases where either only governments act strategically or only producers act strategically. A proper analysis would allow for both sets of agents to act strategically. This is done in Ulph (1993a), and in Ulph (1994). In this paper we provide a more general treatment of the issues. We allow for both governments and producers to act strategically, and for producers' R&D to reduce both costs of production and emissions, but without imposing special functional forms. We show that despite this extra generality the papers by Ulph (1993a) and Ulph (1994) effectively encompass the entire set of qualitative results that can be obtained.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1063.
Date of creation: Nov 1994
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Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
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- Stähler, Frank, 1998. "Competitiveness and environmental policies in strategic environmental policy models," Kiel Working Papers 858, Kiel Institute for the World Economy.
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