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Environmental Policies and Mergers’ Externalities

  • Rafael S. Espinosa Ramírez

    ()

    (Departamento de Economía, Universidad de Guadalajara, Guadalajara, México.)

  • M. Ozgur Kayalica

    ()

    (Departament of Management Engineering, Istanbul Technical University, Istanbul, Turkey.)

A Cournot oligopolistic setting model of trade is characterized by local and foreign firms competing in the presence of pollution quota and tax. Local firms are foreign-owned (FDI) and repatriate their profits. First, we analyze the impact on welfare given by the merger of the local firms, as a response to external firms’ competition and pollution abatement costs. Second, when merger is welfare decreasing, we study the best response of the government in order to compensate this negative externality. Finally, we compare the pollution quota and tax in order to determine their efficiency as a policy instrument.

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File URL: http://www.economiamexicana.cide.edu/num_anteriores/XVI-1/02_ESPINOSA_Y_KAYALICA.pdf
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Article provided by in its journal Economia Mexicana NUEVA EPOCA.

Volume (Year): XVI (2007)
Issue (Month): 1 (January-June)
Pages: 47-74

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Handle: RePEc:emc:ecomex:v:16:y:2007:i:1:p:47-74
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  1. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  2. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  3. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
  4. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
  5. Asako, Kazumi, 1979. "Environmental Pollution in an Open Economy," The Economic Record, The Economic Society of Australia, vol. 55(151), pages 359-67, December.
  6. David R. Collie, 2003. "Mergers and Trade Policy under Oligopoly," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 55-71, February.
  7. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-41, December.
  8. Auquier, A A & Caves, R E, 1979. "Monopolistic Export Industries, Trade Taxes, and Optimal Competition Policy," Economic Journal, Royal Economic Society, vol. 89(355), pages 559-81, September.
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