Market integration, environmental policy, and transboundry pollution from consumption
Recent empirics report that transport cost reductions signi cantly contribute to rapidly growing world trade. This paper develops a reciprocal market model of intra-industry trade with transboundary pollution from consumption to consider how market integration in the form of transport cost reductions a ects the noncooperative choice of an environmental policy and the equilibrium welfare. I show that market integration can improve welfare locally, but that welfare under any non-prohibitive trade cost can not be higher than welfare under autarky. This possibility of trade losses exhibits a sharp contrast to the case of production-generated pollution.
|Date of creation:||Nov 2010|
|Date of revision:||Nov 2010|
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