When do firms support environmental agreements?
Several firms have recently supported their countries’ participation in international environmental agreements where countries commit to stricter environmental regulation. This paper analyzes the rationale of this conduct by examining equilibrium emission standards with and without environmental treaties. We identify that more stringent environmental regulation produces two effects on firm profits: a negative effect due to larger abatement costs, and a positive effect that arises from the amelioration of duopoly overproduction. We describe under which conditions the positive effect dominates the negative effect, increasing firm profits, and inducing them to support their countries’ participation in environmental treaties.
KeywordsTransboundary pollution Strategic environmental policy International environmental agreement Market structure
JEL ClassificationC72 F12 H23 Q28
Unable to display preview. Download preview PDF.
- Feenstra T., De Zeeuw A., Kort P. M. (2003) International competition and investment in abatement: Taxes versus standards. In: Marsiliani L., Rauscher M., Withagen C. (Eds.), Environmental economics and the international economy. Kluwer Academic Publishers, DordrechtGoogle Scholar
- Markusen, J., Morey, E., & Olewiler, N. (1992). Noncooperative equilibria in regional environmental policies when plant locations are endogenous. NBER Working Paper 4051.Google Scholar
- Porter M. E., van der Linde C. (1995) Green and competitive: Breaking the stalemate. Harvard Business Review 73: 120–134Google Scholar
- Rauscher, M. (1993). Environmental regulation and international capital allocation. Nota di Lavoro 79.93. Milan: FEEM.Google Scholar
- Ulph A. (1994) Environmental policy, plant location and government protection. In: Carraro C. (Ed.), Trade, innovation, environment. Kluwer Academic Publishers, DordrechtGoogle Scholar
- Ulph A. (1996b) Strategic environmental policy, international trade and the single European market. In: Braden J., Folmer H., Ulen T. (Eds.), Environmental policy with economic and political integration: The European community and the United States. Edward Elgar, CheltenhamGoogle Scholar