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Does the distribution of emission permits matter for international competitiveness?

This paper analyzes the implications of the distribution of emission permits related to a strategic environmental policy and shows how it alters the competitive relation among firms in the international product market. Our model introduces permits trading into the Brander-Spencer [1985] framework. It analyzes a class of two stages Cournot game involving two governments (Home and Foreign) and their respective industry. It shows the incentive for the Home government to distort is initial distribution of permits from the first-best rule to achieve trade-related policy objectives, enabling its domestic producers to improve their market shares. We establish that the Home government implements a higher distribution of permits than the optimal level.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/V05011.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v05011.

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Length: 19 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:mse:wpsorb:v05011
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  1. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  2. Rob Van der Laan & Andries Nentjes, 2001. "Competitive Distortions in EU Environmental Legislation: Inefficiency versus Inequity," European Journal of Law and Economics, Springer, vol. 11(2), pages 131-152, March.
  3. Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January.
  4. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
  5. Kling, Catherine L. & Zhao, Jinhua, 2000. "On the Long-Run Efficiency of Auctioned vs. Free Permits," Staff General Research Papers 1836, Iowa State University, Department of Economics.
  6. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
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