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The Demands for Environmental Regulation and for Trade in the Presence of Private Mitigation

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  • Louis Hotte

    ()
    (Department of Economics, University of Ottawa)

  • Stanley L. Winer

    ()
    (School of Public Policy and Administration and Department of Economics, Carleton University)

Abstract

We study the nature of individual demands for environmental regulation and for trade openness in the general equilibrium of a small open economy where the environment is an input to production. Differences in the ability of individuals to afford private mitigation of the adverse consequences of pollution is a central feature of the analysis. Private mitigation leads to an endogenous, unequal distribution of the health-related consequences of pollution across income groups in a manner consistent with epidemiologic studies, in contrast to much of the literature which assumes equal health effects for all. We show that when private mitigation is possible at a cost, trade polarizes the interests of rich and poor with respect to the stringency of regulation. Moreover, even though trade has the potential to benefit everyone, the poor may oppose trade openness because of a concern that laxer environmental regulation will then be imposed in the interest of the rich. We explain why and how heterogeneity in the intensity of preferences, and not just in their direction, is likely to play a role in the determination of collective choices with respect to the regulation of the environment and of trade. We conclude by drawing out the general implications of the analysis for the study of the political economy of the environmenttrade- welfare nexus.

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Bibliographic Info

Paper provided by University of Ottawa, Department of Economics in its series Working Papers with number 0810E.

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Length: 30 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:ott:wpaper:0810e

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Keywords: regulation; environment; pollution; private mitigation; trade; welfare; collective choice;

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References

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  1. Khan, M. & Matsusaka, J.G., 1995. "Demand for Environment Goods: Evidence from Voting Patterns on California Initiatives," Discussion Papers 1995_08, Columbia University, Department of Economics.
  2. Jamie Pearce & Simon Kingham & Peyman Zawar-Reza, 2006. "Every breath you take? Environmental justice and air pollution in Christchurch, New Zealand," Environment and Planning A, Pion Ltd, London, vol. 38(5), pages 919-938, May.
  3. Hanna, Brid Gleeson, 2007. "House values, incomes, and industrial pollution," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 100-112, July.
  4. McAusland, Carol, 2003. "Voting for pollution policy: the importance of income inequality and openness to trade," Journal of International Economics, Elsevier, vol. 61(2), pages 425-451, December.
  5. Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February.
  6. Seema Jayachandran, 2008. "Air Quality and Early-Life Mortality: Evidence from Indonesia's Wildfires," NBER Working Papers 14011, National Bureau of Economic Research, Inc.
  7. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
  8. Pethig, Rudiger, 1976. "Pollution, welfare, and environmental policy in the theory of Comparative Advantage," Journal of Environmental Economics and Management, Elsevier, vol. 2(3), pages 160-169, February.
  9. Brooks, Nancy & Sethi, Rajiv, 1997. "The Distribution of Pollution: Community Characteristics and Exposure to Air Toxics," Journal of Environmental Economics and Management, Elsevier, vol. 32(2), pages 233-250, February.
  10. Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807, April.
  11. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  12. McKitrick, Ross & Collinge, Robert A., 2002. "The Existence and Uniqueness of Optimal Pollution Policy in the Presence of Victim Defense Measures," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 106-122, July.
  13. Verdier, Thierry, 2004. "Socially Responsible Trade Integration: A Political Economy Perspective," CEPR Discussion Papers 4699, C.E.P.R. Discussion Papers.
  14. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
  15. Rosado, Marcia A. & Cunha-E-S , Maria A. & Ducla-Soares, Maria M. & Nunes, Luis C., 2006. "Combining averting behavior and contingent valuation data: an application to drinking water treatment in Brazil," Environment and Development Economics, Cambridge University Press, vol. 11(06), pages 729-746, December.
  16. Schleich, Joachim, 1999. "Environmental quality with endogenous domestic and trade policies1," European Journal of Political Economy, Elsevier, vol. 15(1), pages 53-71, March.
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Cited by:
  1. Sophie Bernard & Louis Hotte & Stanley L. Winer, 2010. "Democracy, Inequality and the Environment when Citizens can Mitigate Privately or Act Collectively," CESifo Working Paper Series 3241, CESifo Group Munich.

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