Strategic Environmental Policy under Free Trade with Transboundary Pollution

Lapan, Harvey E.; Sikdar, Shiva

doi:10.1111/j.1467-9361.2010.00589.x

Cited by 21 publications

(15 citation statements)

References 11 publications

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“…Then, trade liberalization leads to lower pollution taxes purely due to the leakage effect. Lapan and Sikdar () find a similar result in their analysis of interindustry trade. In contrast, we show that, with intraindustry trade, pollution policies can be stricter compared to autarky.…”

Section: Strategic Environmental Policysupporting

confidence: 60%

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Can Trade Be Good for the Environment?

Lapan

Sikdar

2016

J Public Economic Theory

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We analyze the impact of trade in a differentiated good on environmental policy when there is local and transboundary pollution. In autarky, the (equivalent) pollution tax is set equal to the marginal damage from own emissions. If the strategic policy instrument is a tax, leakage occurs under trade and tends to lower the tax. The net terms of trade effect, due to the exportable and importable varieties of the differentiated good, tends to increase the tax. We derive conditions under which pollution taxes under trade are higher than the marginal damage from own emissions, i.e., higher than the Pigouvian tax and than that under autarky. Then, pollution falls under trade relative to autarky. When countries use quotas/permits to regulate pollution, there is no leakage, while the net terms of trade effect tends to make pollution policy stricter. The equivalent tax is always higher than the marginal damage from own emissions, i.e., always higher than the Pigouvian tax and than that under autarky; hence, pollution always falls under trade. Our analysis provides some insight into the findings in the empirical literature that trade might be good for the environment.

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Section: Strategic Environmental Policysupporting

confidence: 60%

“…Hence, the autarky and the free trade equilibria will be the same. Lapan and Sikdar () find a similar result in the context of interindustry trade. However, with intraindustry trade, we find that the environmental outcomes are different under trade compared to autarky, and trade can be beneficial for the environment.…”

Section: Strategic Environmental Policymentioning

confidence: 52%

Can Trade Be Good for the Environment?

Lapan

Sikdar

2016

J Public Economic Theory

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“…In a similar model of transboundary pollution and perfect competition, Ludema and Wooton (1994) point out that environmental policy is used as a substitute for strategic trade policy, if the latter is banned and countries play Nash. Moreover, Rauscher (1997) and Lapan and Skidar (2011) show in different settings that noncooperative environmental policy of large countries is inefficiently lax under 1 In the present paper, the terms IEA and (climate) coalition are synonymous because our exclusive focus is on a single coalition. Also, we take as equivalent the terms 'self-enforcing IEA' and 'stable (climate) coalition' and apply the standard stability concept, which '.…”

Section: The Problemmentioning

confidence: 99%

“…free trade and results in a 'race to the bottom.' Another (small) strand of the literature (Copeland and Taylor 1995;Hatzipanayatou et al 2008;Lapan and Skidar 2011) examines whether or not trade is bad for the environment. In a Heckscher-Ohlin model with countries setting pollution quotas in a noncooperative way, Copeland and Taylor (1995) find that trade liberalization does not increase world pollution if countries are identical.…”

Section: The Problemmentioning

confidence: 99%

Is trade liberalization conducive to the formation of climate coalitions?

Eichner

Pethig

2014

Int Tax Public Finance

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The present paper analyzes the impact of moving from autarky to international trade on the formation of self-enforcing international environmental agreements with Nash coalitions. With and without trade, stable coalitions consist of two countries at most-in contrast to the model that portrays coalitions as Stackelberg leaders (Eichner and Pethig in Public Econ 102:37-50, 2013). Although the coalition steps up its mitigation effort in the transition from autarky to trade, world emissions rise and thus constitute a 'green paradox of trade liberalization.' Opening the borders not only increases global pollution, but also reduces the aggregate welfare of all countries.

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“…7 We suppress these notations, α and β, and use them only when required for future analysis. 8 The GNP function is given by R(p,t) = max x,y,z {px + y −tz} such that g(x, y, z; − → V ) ≤ 0. Standard envelope properties of this function imply Rt = −z and Rtt = −zt.…”

Section: Modelmentioning

confidence: 99%

Carbon leakage: the role of sequential policy setting

Sikdar

Lapan²

2011

Envir. Dev. Econ.

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We analyze non-cooperative environmental policy when the only strategic interaction between countries is through bilateral transboundary pollution, i.e., countries are closed or small open economies. When countries set pollution taxes simultaneously, there is no carbon leakage. However, in the sequential-move game, the leader sets its pollution tax lower than the marginal damage from own pollution and lower than that in the simultaneous-move game, while the follower sets its tax higher than that in the simultaneous-move game. The only motive behind the leader's underregulation of own pollution is to reduce the incidence of transboundary pollution from the follower, i.e., to reduce carbon leakage. Aggregate pollution is higher in the sequentialmove game than in the simultaneous-move game if pollution is a pure global public bad. AbstractWe analyze non-cooperative environmental policy when the only strategic interaction between countries is through bilateral transboundary pollution, i.e., countries are closed or small open economies. When countries set pollution taxes simultaneously, there is no carbon leakage. However, in the sequential-move game, the leader sets its pollution tax lower than the marginal damage from own pollution and lower than that in the simultaneous-move game, while the follower sets its tax higher than that in the simultaneous-move game. The only motive behind the leader's underregulation of own pollution is to reduce the incidence of transboundary pollution from the follower, i.e., to reduce carbon leakage. Aggregate pollution is higher in the sequential-move game than in the simultaneous-move game if pollution is a pure global public bad. JEL classification codes: Q58, H23.

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Strategic Environmental Policy under Free Trade with Transboundary Pollution

Cited by 21 publications

References 11 publications

Can Trade Be Good for the Environment?

Can Trade Be Good for the Environment?

Is trade liberalization conducive to the formation of climate coalitions?

Carbon leakage: the role of sequential policy setting

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