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Tariffs and the Adoption of Clean Technology Under Asymmetric Information

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This paper examines the effect of import tariffs on the decision of a foreign monopolist to adopt “clean” technology – technology that reduces the flow of a negative cross-border externality per unit of exports. The clean technology is assumed to increase the marginal cost of production relative to the dirty technology, but only the firm knows the extent of the increase. Under complete information, we show that, despite its protectionist motivation, the importing country’s optimal tariff induces the firm to adopt the clean technology if and only if it is globally efficient to do so. Under incomplete information, this efficiency property is disrupted. If the optimal tariff is decreasing in the marginal cost, then it leads the firm to bias its choice in favor of dirty technology. Classification-JEL Codes: F13, F18

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~06-06-09.

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Date of creation: 09 Jun 2006
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Handle: RePEc:geo:guwopa:gueconwpa~06-06-09

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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  1. Gallegos, Alberto & Régibeau, Pierre, 2004. "Managed Trade, Trade Liberalization and Local Pollution," CEPR Discussion Papers 4491, C.E.P.R. Discussion Papers.
  2. Choi, J.P., 1992. "Optimal Tariffs and the Choice of Technology Discriminatory Tariffs vs. the "Most Favored Nation" Clause," Discussion Papers 1992_46, Columbia University, Department of Economics.
  3. Ludema, Rodney D & Wooton, Ian, 1997. "International Trade Rules and Environmental Cooperation under Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 605-25, August.
  4. Meredith A. Crowley, 2002. "Do safeguard tariffs and antidumping duties open or close technology gaps?," Working Paper Series WP-02-13, Federal Reserve Bank of Chicago.
  5. Ludema, R.D. & Wooton, I., 1992. "Cross-Border Externalities and trade Liberalization: The Strategic Control of Pollution," UWO Department of Economics Working Papers 9202, University of Western Ontario, Department of Economics.
  6. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
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Cited by:
  1. Ben Youssef, Slim, 2008. "Adoption of a Cleaner Technology by a Monopoly Under Incomplete Information," MPRA Paper 9879, University Library of Munich, Germany, revised Jul 2008.
  2. Takeshi Iida & Kenji Takeuchi, 2011. "Does free trade promote environmental technology transfer?," Journal of Economics, Springer, vol. 104(2), pages 159-190, October.
  3. Takeshi Iida & Kenji Takeuchi, 2010. "Policy-Induced Environmental Technology Transfer," Discussion Papers 1008, Graduate School of Economics, Kobe University.
  4. Robert W. Staiger & Alan O. Sykes, 2009. "International Trade and Domestic Regulation," NBER Working Papers 15541, National Bureau of Economic Research, Inc.

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