Tradable Permits vs Ecological Dumping
AbstractIn this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to underregulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.
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Bibliographic InfoPaper provided by University of Cambridge, Department of Land Economics in its series Environmental Economy and Policy Research Working Papers with number 50.2010.
Date of creation: 2010
Date of revision: 2010
Strategic environmental policy; Tradable permits; Race to the top.;
Other versions of this item:
- Panos Hatzipanayotou & Fabio Antoniou & Phoebe Koundouri, 2010. "Tradable Permits vs Ecological Dumping," Working Papers 2010.2, Fondazione Eni Enrico Mattei.
- Phoebe Koundouri & Fabio Antoniou & Panos Hatzipanayotou, 2009. "Tradable Permits vs Ecological Dumping," DEOS Working Papers 1002, Athens University of Economics and Business.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F18 - International Economics - - Trade - - - Trade and Environment
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-ENE-2010-04-17 (Energy Economics)
- NEP-ENV-2010-04-17 (Environmental Economics)
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