Political institutions and the design of environmental policy in a federal system with asymmetric information
Policy debates on trade and the environment frequently refer to a need for countries linked by trade to co-ordinate their environmental policies even for entirely local pollution problems; co-ordination is often taken to imply harmonisation of environmental policies to provide a 'level playing field' for trade. Underlying this argument is a concern that national governments will not fully internalise environmental externalities. In the conventional small open-economy model with a welfare-maximising government such a concern is unfounded; moreover even if governments did not fully internalise externalities, policy reforms would not have to be co-ordinated and harmonisation would be undesirable if there are genuine differences between countries. To give some basis for international environmental policy, it is necessary to depart from the conventional small open-economy model and I consider a number of such departures, together with their implications for policy and institutions. I work within a framework where any co-ordination is achieved by a supra-national government agency, e.g. in the form of a federal government. I begin with a simple second-best argument where countries are large, national governments have not fully corrected environmental market failures, but they do not seek to manipulate terms of trade. This provides a justification for co-ordination of policy reforms, and in a special model this can be considered a form of harmonisation. However to consider appropriate institutions to achieve co-ordination one needs to consider why national governments have not fully corrected market failures. The first case I consider is a strategic trade model, where individual national governments may have incentives to set weak environmental policies (a 'race to the bottom'). While this provides a rationale for co-ordination of the domestic environmental policies of states, this is unlikely to require harmonisation, and a policy of minimum standards may also fail. If the federal government is poorly informed about environmental damage costs in individual states, this may require setting environmental policies in states with different damage costs which are more similar than would be the case with full information, but this does not amount to harmonisation of environmental policies. I next examine political economy models of how governments may set their environmental and trade policies when governments have objective functions which reflect the influence of special interest groups. This leads to an analysis of political institutions for limiting the discretion of governments subject to the influence of special interests, while recognising that governments have access to information not available to voters. In the context of the particular model employed, the relevant restriction of government discretion implies harmonisation of environmental policies, and I assess the incentives for restricting government discretion at both the federal and state levels
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||01 Jan 1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+44) 23 80592537
Fax: (+44) 23 80593858
Web page: http://www.economics.soton.ac.uk/Email:
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.:
- Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Carruth, Alan & Henley, Andrew, 1990. "Can Existing Consumption Functions Forecast Consumer Spending in the Late 1980's?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 211-22, May.
- Francis X. Diebold, 1989.
"Forecast combination and encompassing: reconciling two divergent literatures,"
Finance and Economics Discussion Series
80, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X., 1989. "Forecast combination and encompassing: Reconciling two divergent literatures," International Journal of Forecasting, Elsevier, vol. 5(4), pages 589-592.
- Clive W. J. Granger & Melinda Deutsch, 1991.
"Comments on the evaluation of policy models,"
International Finance Discussion Papers
413, Board of Governors of the Federal Reserve System (U.S.).
- Miller, Preston J, 1978. "Forecasting with Econometric Methods: A Comment," The Journal of Business, University of Chicago Press, vol. 51(4), pages 579-84, October.
- Andrew C Harvey & Andrew Scott, 1994.
"Seasonality in Dynamic Regression Models,"
CEP Discussion Papers
dp0184, Centre for Economic Performance, LSE.
- Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
- Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
- David F. Hendry & Michael P. Clements, 1994. "Can Econometrics Improve Economic Forecasting?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 130(III), pages 267-298, September.
- Coulson, N.E. & Robins, R.P., 1989. "Forecast Combination In A Dynamic Setting," Papers 8-88-4, Pennsylvania State - Department of Economics.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Preston J. Miller, 1978. "Forecasting with econometric methods: a comment," Working Papers 104, Federal Reserve Bank of Minneapolis.
- Jurgen A. Doornik & David F. Hendry & Bent Nielsen, 1998.
"Inference in Cointegrating Models: UK M1 Revisited,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 12(5), pages 533-572, December.
- Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-72, December.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, March.
- Favero, C. & Hendry, D., 1990. "Testing The Lucas Critique: A Review," Economics Series Working Papers 99101, University of Oxford, Department of Economics.
- Engle, R. & Hendry, D., 1990.
"Testing Super Exogeneity And Invariance In Regression Models,"
Economics Series Working Papers
99100, University of Oxford, Department of Economics.
- Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March.
- Hendry, David F, 1994. "HUS Revisited," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 86-106, Summer.
- Birchenhall, C R, et al, 1989. "A Seasonal Model of Consumption," Economic Journal, Royal Economic Society, vol. 99(397), pages 837-43, September.
- Hendry, David F & Doornik, Jurgen A, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-61, September.
- Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-10, November.
- Clements, Michael P. & Hendry, David F., 1997. "An empirical study of seasonal unit roots in forecasting," International Journal of Forecasting, Elsevier, vol. 13(3), pages 341-355, September.
- Grayham E. Mizon & David F. Hendry, 1998. "Exogeneity, causality, and co-breaking in economic policy analysis of a small econometric model of money in the UK," Empirical Economics, Springer, vol. 23(3), pages 267-294.
- Hansen, Bruce E., 1992.
"Testing for parameter instability in linear models,"
Journal of Policy Modeling,
Elsevier, vol. 14(4), pages 517-533, August.
- Tom Doan, . "STABTEST: RATS procedure to perform Hansen's stability test for OLS," Statistical Software Components RTS00199, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:stn:sotoec:9718. 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: (Chris Thorn)
If references are entirely missing, you can add them using this form.