Agricultural Trade Liberalization And Strategic Environmental Policy: A Formal Analysis
This paper develops an extended general equilibrium model of international trade in order to analyze the welfare effects of agricultural trade liberalization if a large country influences its terms of trade by means of environmental policy. We derive globally optimal first-best and second-best environmental and trade policy combinations as a benchmark for assessing the trade-distorting character of strategically motivated environmental policies and demonstrate that if second-best rather than first-best policies are chosen as a benchmark the conclusions may differ not only in magnitude but also in direction. We further demonstrate that if a Pigouvian instrument is transformed into a strategic environmental policy, following trade liberalization, the global welfare effect is unambiguously positive. We thereby prove that the distorting effect of an optimal tariff is generally greater than that of a strategically motivated environmental policy.
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- Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993.
"Environmental Policy when Market Structure and Plant Locations Are Endogenous,"
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- Kemp, Murray C & Nagishi, Takashi, 1969. "Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 1011-1013, Nov./Dec..
- Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
- Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February. Full references (including those not matched with items on IDEAS)
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