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Trade and Environmental Policies under Incomplete Information


  • Sule Aytaskin

    (Faculty of Management, Istanbul Technical University)

  • Benan Zeki Orbay

    () (Faculty of Management, Istanbul, Technical University, Macka, Istanbul, Turkey)


The damage caused by the economic activities is one of the major problems of the world. On the one hand, countries try to support their own firms and motivate FDI by protectionist trade policies, and on the other hand, they try to protect environment via environmental policies. In this paper, we aim to analyze optimal trade and environmental policies using a two-stage game theoretic model where domestic developing country reveals the level of import tariff and emission tax in the first stage and the foreign firm from a developed country decides where to locate in the second stage. The foreign firm can either stay in its own country and exports to developing country or invest and produce in developing country (FDI). Domestic firm’s marginal cost is publicly known however, foreign firm can either have low cost or a high cost technology. Analyzing this model, we observe how trade and environmental policies and the location choice of the foreign firm are related and how these decisions affect the environmental pollution of the domestic country under uncertainty on foreign firm’s technology

Suggested Citation

  • Sule Aytaskin & Benan Zeki Orbay, 2006. "Trade and Environmental Policies under Incomplete Information," Computing in Economics and Finance 2006 141, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:141

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    References listed on IDEAS

    1. Baoline Chen & Peter A. Zadrozny, 2003. "Higher-Moments in Perturbation Solution of the Linear-Quadratic Exponential Gaussian Optimal Control Problem," Computational Economics, Springer;Society for Computational Economics, vol. 21(1_2), pages 45-64, February.
    2. Zadrozny, Peter A., 1998. "An eigenvalue method of undetermined coefficients for solving linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1353-1373, August.
    3. Peter A. Zadrozny & Baoline Chen, 1999. "Perturbation Solution of Nonlinear Rational Expectations Models," Computing in Economics and Finance 1999 334, Society for Computational Economics.
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    More about this item


    Strategic trade policies; environmental policies; incomplete information;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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