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Strategic Environmental Policy and International Trade - The Role of Market Conduct

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  • Ulph, Alistair Mitchell
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    Abstract

    In this paper I analyse the incentives for governments and producers to act strategically in imperfectly competitive markets when there is Bertrand competition. Strategic behaviour by governments takes the form of distortions to their environmental policy from the first-best rule of equating marginal damage and marginal abatement costs. Strategic behaviour by producers implies inefficient investment in R&D. I contrast the outcomes with Bertrand competition with those in Cournot competition, which I analysed in an earlier paper (Ulph (1993a)). The main findings are: when only governments act strategically, they will set too tough environmental policy and the distortion will be greater if governments use emission standards rather than emission taxes; both results are the opposite of what happened in Cournot competition. When only producers act strategically, they under-invest in R&D (in Cournot they over-invest), but it is not possible to give a universal ranking of policy instruments. When governments and producers act strategically, this reduces the extent of government distortion of environmental policy, which is the same result as with Cournot, but for very different reasons; when governments use emission taxes then with Bertrand competition they set taxes below the first-best level, the reverse of what happens when only governments act strategically.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1065.

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    Date of creation: Nov 1994
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    Handle: RePEc:cpr:ceprdp:1065

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    Related research

    Keywords: Environmental Policy; Imperfect Competition; International Trade; Market Conduct; Strategic Behaviour;

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    Cited by:
    1. Li, Hong & Huang, Chengming & Yang, Bill Z., 2011. "Environmental Regulation, Business Innovation and International Competitiveness - Regolazione ambientale, innovazioni d’impresa e competitività internazionale," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(1), pages 115-128.
    2. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
    3. Alessio D’Amato & Edilio Valentini, 2011. "Enforcement and environmental quality in a decentralized emission trading system," Journal of Regulatory Economics, Springer, vol. 40(2), pages 141-159, October.
    4. BENCHEKROUN, Hassan & MURAT YILDIZ, Halis, 2010. "Free Trade, Autarky and the Sustainability of an International Environmental Agreement," Cahiers de recherche 12-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    5. Rupayan Pal, 2009. "Delegation and emission tax in a differentiated oligopoly," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2009-007, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Bartsch, Elga, 1996. "Enforcement of environmental liability in the case of uncertain causality and asymmetric information," Kiel Working Papers 755, Kiel Institute for the World Economy.
    7. Kenji Fujiwara, 2011. "Market Integration and Competition in Environmental and Trade Policies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(4), pages 561-572, August.
    8. Rupayan Pal & Bibhas Saha, 2010. "Does Partial Privatization Improve the Environment?," Working Papers id:3122, eSocialSciences.
    9. Rupayan Pal & Bibhas Saha, 2010. "Does partial privatization improve the environment," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2010-018, Indira Gandhi Institute of Development Research, Mumbai, India.
    10. Ferrara, Ida & Missios, Paul & Murat Yildiz, Halis, 2009. "Trading rules and the environment: Does equal treatment lead to a cleaner world?," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 206-225, September.
    11. Rupayan Pal, 2009. "Delegation and Emission Tax in a Differentiated Oligopoly," Working Papers id:2263, eSocialSciences.
    12. Glebe, Thilo W. & Latacz-Lohmann, Uwe, 2004. "Agricultural Trade Liberalization And Strategic Environmental Policy: A Formal Analysis," 2004 Annual meeting, August 1-4, Denver, CO 20277, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Joachim Fünfgelt & Günther G. Schulze, 2011. "Endogenous Environmental Policy when Pollution is Transboundary," Working Paper Series in Economics 196, University of Lüneburg, Institute of Economics.
    14. Thilo W. Glebe, 2003. "Assessing the agricultural trade and environment interaction: Taking stock and looking ahead," Discussion Papers 022003, Technische Universität München, Environmental Economics and Agricultural Policy Group.
    15. Elbers, C. & Withagen, C.A.A.M., 1999. "General equilibrium models of environmental regulation and international trade," Discussion Paper 99.24, Tilburg University, Center for Economic Research.
    16. 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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