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Tradable Permits vs Ecological Dumping

Author

Listed:
  • Phoebe Koundouri

    (Dept. of International and European Economic Studies, Athens University of Economics and Business)

  • Fabio Antoniou

    () (Athens University of Economics and Business)

  • Panos Hatzipanayotou

    () (Athens University of Economics and Business)

Abstract

In this paper we examine an alternative policy scenario, where governments allow polluting Ã??rms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting Ã??rms and countries since the prisonersÃ??dilemma is moderated.

Suggested Citation

  • Phoebe Koundouri & Fabio Antoniou & Panos Hatzipanayotou, 2009. "Tradable Permits vs Ecological Dumping," DEOS Working Papers 1002, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1002
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Strategic environmental policy; Tradable permits; Race to the top;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment

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