Interaction between trade and environment policies with special-interest politics
Purpose – The purpose of the paper is to examine the interdependencies between trade and environment policies, as they get jointly determined in a political-economy model of a small open economy. In theoretical literature, government is usually modeled as benevolent. In real economies, however, it is not a pure social welfare maximizer. Lobbies have stakes in the specific policies, and they negotiate with/bribe the government over the latter's policy stance. The influence of industry lobbying on both trade and the environment policies at the political equilibrium is the focus of the paper. Design/methodology/approach – Concepts from non-cooperative game theory are used to incorporate a Nash-bargaining game between the industry lobby and government. Government is not benevolent. Campaign contributions help win elections and provide incentive to distort policies to attract lobby contributions. Several situations are modeled. Given a politically set environment policy, tariffs may be zero in view of the free trade agreements. Or, a sequential game is modeled where environment policy is set to maximize social welfare, given a politically determined trade policy. Alternatively, in the full political equilibrium, government and lobby bargain simultaneously over tariff and the environmental tax. Findings – Lobbying implies that government may trade-off one policy for another. When only environment policy is politically manipulable by the lobby, pollution tax is lower than the Pigouvian tax. If, instead, the lobby can influence trade policy only, government provides protection to domestic import-competing sector. In a sequential game, the trade policy outcome does not change, but pollution tax is always higher than the Pigouvian level, even with the environmental lobby absent. With both the policies political, the government “concedes” and offers positive tariff protection, but, not on environment policy; that is, imposes a pollution tax higher than the Pigouvian level. Originality/value – The paper provides useful insights into how, under the influence of special-interest politics, and bargaining between the government and lobbies, the trade and environment policies interact with each other. In comparison with the existing literature on this issue, it derives several stronger and (apparently) counter-intuitive conclusions.
Volume (Year): 3 (2010)
Issue (Month): 2 ( October)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com |
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/igdr.htm Email:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Grossman, G.M. & Helpman, E., 1993.
"Trade Wars and Trade Talks,"
1-93, Tel Aviv.
- Grossman, G.M. & Helpman, E., 1992. "Trade Wars and Trade Talks," Papers 163, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 1993. "Trade Wars and Trade Talks," NBER Working Papers 4280, National Bureau of Economic Research, Inc.
- Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
- Grossman, Gene M. & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Scholarly Articles 3450062, Harvard University Department of Economics.
- Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December.
- Fredriksson, Per G., 1998. "Environmental policy choice: Pollution abatement subsidies," Resource and Energy Economics, Elsevier, vol. 20(1), pages 51-63, March.
- Grossman, Gene M & Helpman, Elhanan, 1996.
"Electoral Competition and Special Interest Politics,"
Review of Economic Studies,
Wiley Blackwell, vol. 63(2), pages 265-86, April.
- Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
- Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
- Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999.
"Protection for Sale: An Empirical Investigation,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1135-1155, December.
- Schleich, Joachim, 1999. "Environmental quality with endogenous domestic and trade policies1," European Journal of Political Economy, Elsevier, vol. 15(1), pages 53-71, March.
- Paola Conconi, 2003.
"Green Lobbies and Transboundary Pollution in Large Open Economies,"
ULB Institutional Repository
2013/5837, ULB -- Universite Libre de Bruxelles.
- Conconi, Paola, 2003. "Green lobbies and transboundary pollution in large open economies," Journal of International Economics, Elsevier, vol. 59(2), pages 399-422, March.
- Copeland, Brian R & Taylor, M Scott, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 755-87, August.
When requesting a correction, please mention this item's handle: RePEc:eme:igdrpp:v:3:y:2010:i:2:p:138-165. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If references are entirely missing, you can add them using this form.