Trade, externalities, and the impact of asymmetric information on trade policy
This paper investigates the relationship between trade liberalisation, consumers' environmental awareness and a negative environmental externality in consumption. We adopt an international Hotelling duopoly setup, where firms are located in two asymmetric countries. We find that, if the intensity of environmental externality is common knowledge for country governments, this setup delivers no need of accompanying trade policies in order to enforce trade liberalisation. In the opposite case, in which information is asymmetric, i.e., the small country's Government cannot observe the positive enviromental effects of its firm's exports to foreign consumers, we find that: (i) the Pareto optimum is always enforced, since the brown country always relaxes the distortionary trade policy, and (ii) cheating on the environmental externality allows the brown country's government to extract extra surplus from the green country. Allowing for trade in green technology delivers opposite conclusions: the externality is minimised and welfare is maximised in equilibrium if information is symmetric while trade liberalisation with asymmetric information always entails a second best outcome.
|Date of creation:||Mar 2014|
|Date of revision:|
|Contact details of provider:|| Postal: Piazza Scaravilli, 2, and Strada Maggiore, 45, 40125 Bologna|
Phone: +39 051 209 8019 and 2600
Fax: +39 051 209 8040 and 2664
Web page: http://www.dse.unibo.it
More information through EDIRC
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.:
- Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2013. "What Do We Learn From Schumpeterian Growth Theory?," Scholarly Articles 27755233, Harvard University Department of Economics.
- R. Cellini & L. Lambertini, 2003.
"Dynamic R&D with Spillovers: Competition vs Cooperation,"
495, Dipartimento Scienze Economiche, Universita' di Bologna.
- Cellini, Roberto & Lambertini, Luca, 2009. "Dynamic R&D with spillovers: Competition vs cooperation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 568-582, March.
- Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005.
"Competition and Innovation: An Inverted-U Relationship,"
4481507, Harvard University Department of Economics.
- Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
- Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
- Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
- Cellini, Roberto & Lambertini, Luca, 2002. "A differential game approach to investment in product differentiation," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 51-62, November.
- Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
- Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
- Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 159-215 National Bureau of Economic Research, Inc.
- R. Cellini & L. Lambertini, 2002. "Advertising with Spillover Effects in a Differential Oligopoly Game With Differentiated Goods," Working Papers 430, Dipartimento Scienze Economiche, Universita' di Bologna.
- R. Cellini & L. Lambertini, 2001. "Advertising in a Differential Oligopoly Game," Working Papers 427, Dipartimento Scienze Economiche, Universita' di Bologna.
- Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:wp930. 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: (Dipartimento Scienze Economiche, Universita' di Bologna)
If references are entirely missing, you can add them using this form.