Strategic Environmental Policy Under Free Trade with Transboundary Pollution
Abstract�We analyze the eff ects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in�a race to the bottom in environmental taxes, which makes both countries worse o ff.�This is not due to the terms of trade motive, but rather the incentive, in a�strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign�emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global�public bad, there is a race to the bottom in environmental policy. Under free trade,�internationally nontradable quotas result in the lowest pollution level and strictly�welfare-dominate taxes. The ordering of internationally tradable quotas and pollution�taxes depends, among other things, on the degree of international pollution spillovers.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 31298.
Date of creation: 06 May 2007
Date of revision:
Publication status: Published in Review of Development Economics, February 2011, vol. 15 no. 1, pp. 1-18
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
Free trade; Transboundary pollution; Strategic environmental policy; Carbon leakage; Race to the bottom.;
Other versions of this item:
- Harvey E. Lapan & Shiva Sikdar, 2011. "Strategic Environmental Policy under Free Trade with Transboundary Pollution," Review of Development Economics, Wiley Blackwell, vol. 15(1), pages 1-18, 02.
- Sikdar, Shiva & Lapan, Harvey E., 2008. "Strategic Environmental Policy Under Free Trade with Transboundary Pollution," Staff General Research Papers 12931, Iowa State University, Department of Economics.
- Lapan, Harvey E. & Sikdar, Shiva, 2010. "Strategic environmental policy under free trade with transboundary pollution," 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia 59160, Australian Agricultural and Resource Economics Society.
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- F18 - International Economics - - Trade - - - Trade and Environment
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- 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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