Voluntary Environmental Agreements, Emission Taxes and International Trade: The Importance of the Timing of Strategies
AbstractThe purpose of the paper is to narrow the gap between the widespread use of voluntary agreements and research on the rationale of such approaches. A topical example are voluntary agreements of many industries to reduce carbon dioxide emissions because of global warming. If the industry anticipates that taxes and fees will be introduced in the coming years, it seems rational to act in advance in order to mitigate the tax levels. The conventional approach in strategic trade and tax models was to look at a two-stage game where governments set taxes first and then firms react. In such a policy regime the government is concerned about the international competitiveness of its firms and sets taxes below marginal damages. In this paper, we consider a policy regime with a reversed timing. Firms commit themselves in the face of emission taxes to abatement efforts and to lower levels of the environmentally intensive output. Then the government introduces the tax. Under this timing of strategies the tax is equal to marginal damage. Firms waive profit and reduce output in order to use less of the polluting input. The reward for this behavior will be a less strict use of policy instruments and hence lower abatement costs in the near future.
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Bibliographic InfoPaper provided by Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre in its series Discussion Papers with number 562.
Date of creation: 1999
Date of revision:
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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- Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
- Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
- Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
- Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
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