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The Political Economy of Environmental Regulations and Industry Compensation

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  • Stoschek, Barbara
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    Abstract

    This paper uses a political-economy framework to analyze what consequences the exogenous introduction of a quantitative restriction on total emissions in a small open economy has on the stringency of domestic trade policy. The question is whether and to what extent the government, if it takes different lobby groups´ interests into consideration, has an incentive to compensate the polluting industry for stricter environmental regulations by granting higher protection to it. It turns out that the government will indeed tend to increase subsidization of the industry affected by environmental regulation. This compensation will even be more than complete as long as environmental interests are taken into account. Hence, contrary to what might be expected, a net benefit for the polluting sector arises from environmental restrictions. --

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    File URL: http://econstor.eu/bitstream/10419/22029/1/EWP-2007-13.pdf
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    Bibliographic Info

    Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,13.

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    Date of creation: 2007
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    Handle: RePEc:zbw:cauewp:5612

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    Related research

    Keywords: Environmental Regulations; International Competitiveness; Political Economy; Trade Policy;

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    1. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
    2. Rogge, Karoline S. & Schleich, Joachim & Betz, Regina, 2006. "An early assessment of national allocation plans for phase 2 of EU emission trading," Working Papers "Sustainability and Innovation" S1/2006, Fraunhofer Institute for Systems and Innovation Research (ISI).
    3. Arik Levinson & M. Scott Taylor, 2004. "Unmasking the Pollution Haven Effect," NBER Working Papers 10629, National Bureau of Economic Research, Inc.
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