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Tariffs and the adoption of clean technology under asymmetric information

  • Rodney D. Ludema
  • Taizo Takeno

This paper examines the effect of a tariff on the decision of a foreign monopolist to adopt `clean' technology, which reduces the flow of a negative cross-border externality. The clean technology increases the marginal cost of production relative to the dirty technology, but only the firm knows the extent of the increase. Under complete information, despite its protectionist motivation, the importing country's optimal tariff induces the firm to adopt the clean technology if and only if it is globally efficient to do so. Under incomplete information, this efficiency property is disrupted, and the firm biases its choice in favour of dirty technology.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 40 (2007)
Issue (Month): 4 (November)
Pages: 1100-1117

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Handle: RePEc:cje:issued:v:40:y:2007:i:4:p:1100-1117
Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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  1. Ludema, R.D. & Wooton, I., 1992. "Cross-Border Externalities and trade Liberalization: The Strategic Control of Pollution," UWO Department of Economics Working Papers 9202, University of Western Ontario, Department of Economics.
  2. Choi, Jay Pil, 1995. "Optimal tariffs and the choice of technology Discriminatory tariffs vs. the 'Most Favored Nation' clause," Journal of International Economics, Elsevier, vol. 38(1-2), pages 143-160, February.
  3. Alberto Gallegos & Pierre Regibeau, 2004. "Managed Trade, Trade Liberalisation and Local Pollution," Economics Discussion Papers 580, University of Essex, Department of Economics.
  4. Ludema, Rodney D & Wooton, Ian, 1997. "International Trade Rules and Environmental Cooperation under Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 605-25, August.
  5. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
  6. Crowley, Meredith A., 2006. "Do safeguard tariffs and antidumping duties open or close technology gaps?," Journal of International Economics, Elsevier, vol. 68(2), pages 469-484, March.
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