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Free-riding, carbon treaties, and trade wars: the role of domestic environmental policies

  • Abrego, Lisandro
  • Perroni, Carlo

This paper uses a calibrated general-equilibrium model of North-South trade with carbon emissions to explore the strategic, open-economy implications of price and quantity based instruments for CO2 emission reduction. We compute non-cooperative environmental and trade policy equilibria and Nash bargaining outcomes in environmental policies with side payments of cash. Results show that quotas can lead to higher internalization levels in a non- cooperative zero-tariff equilibrium in comparison with emission fees. If tariffs are also chosen non-cooperatively, the form of policy instrument used affects equilibrium tariffs, with quotas leading to lower trade barriers, particularly under a regional carbon treaty.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 58 (1999)
Issue (Month): 2 (April)
Pages: 463-483

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Handle: RePEc:eee:deveco:v:58:y:1999:i:2:p:463-483
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  1. Rodriguez, Carlos Alfredo, 1974. "The non-equivalence of tariffs and quotas under retaliation," Journal of International Economics, Elsevier, vol. 4(3), pages 295-298, August.
  2. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
  3. Perroni, Carlo & Rutherford, Thomas F, 1993. " International Trade in Carbon Emission Rights and Basic Materials: General Equilibrium Calculations for 2020," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 257-78.
  4. Mestelman, Stuart, 1989. "Taxes, Subsidies, Standards, and Social Choices," Public Finance = Finances publiques, , vol. 44(2), pages 268-84.
  5. Fishelson, Gideon, 1976. "Emission control policies under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 189-197, October.
  6. repec:oup:restud:v:41:y:1974:i:4:p:477-91 is not listed on IDEAS
  7. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
  8. Rodney D. Ludema & Ian Wooton, 1994. "Cross-Border Externalities and Trade Liberalization: The Strategic Control of Pollution," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 950-66, November.
  9. Buchanan, James M & Tullock, Gordon, 1975. "Polluters' Profits and Political Response: Direct Controls Versus Taxes," American Economic Review, American Economic Association, vol. 65(1), pages 139-47, March.
  10. Wallace Oates & William Baumol, 1975. "The Instruments for Environmental Policy," NBER Chapters, in: Economic Analysis of Environmental Problems, pages 95-132 National Bureau of Economic Research, Inc.
  11. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  12. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-37, September.
  13. Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-22, June.
  14. Carlo Perroni & Randall M. Wigle, 1994. "International Trade and Environmental Quality: How Important Are the Linkages?," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 551-67, August.
  15. Desvousges, William H. & Smith, V. Kerry & Fisher, Ann, 1987. "Option price estimates for water quality improvements: A contingent valuation study for the monongahela river," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 248-267, September.
  16. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
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