Abstract
Is there a case for preferential treatment of the exposed sector in an economy when compliance to an aggregate emissions constraint induced by an international environmental agreement is mandatory? This question is being debated in many countries in the context of the implementation of the Kyoto Protocol. We address the issue in a general equilibrium framework and theoretically cover several market structures, including perfect competition, the large country case and oligopoly. We identify the conditions under which preferential treatment of the exposed sector is not warranted from the point of view of maximizing social welfare. In addition, we demonstrate that in the case of oligopoly, instituting a more stringent environmental policy on the exposed sector might be profit-enhancing for this sector. This finding lends theoretical support to a specific interpretation of the Porter hypothesis.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
A. Barnett (1980) ArticleTitleThe Pigouvian Tax Rule under Monopoly American Economic Review 70 1037–41
S. Barrett (1994) ArticleTitleStrategic Environmental Policy and International Trade Journal of Public Economics 54 325–38 Occurrence Handle10.1016/0047-2727(94)90039-6
W. Baumol W. Oates (1988) The Theory of Environmental Policy Cambridge University Press Cambridge, MA
J. Bhagwati A. Panagariya T. Srinivasan (1998) Lectures on International Trade MIT Press Cambridge, MA
A. Brander B. Spencer (1985) ArticleTitleExport Subsidies and International Market Share Rivalry Journal of International Economics 18 83–100 Occurrence Handle10.1016/0022-1996(85)90006-6
J. Brander S. Taylor (1997) ArticleTitleInternational Trade between Consumer and Conservationist Countries Resource and Energy Economics 19 267–97 Occurrence Handle10.1016/S0928-7655(97)00013-4
D. Collie D. Meza Particlede (1986) ArticleTitleInadequacies of the Strategic Rationale of Export Subsidies Economics Letters 22 369–73 Occurrence Handle10.1016/0165-1765(86)90100-X
D. Collie D. Meza Particlede (2003) ArticleTitleComparative Advantage and the Pursuit of Strategic Trade Policy Economics Letters 81 279–83 Occurrence Handle10.1016/S0165-1765(03)00193-9
K. Conrad (1993) ArticleTitleTaxes and Subsidies for Pollution-intensive Industries as Trade Policy Journal of Environmental Economics and Management 25 121–35 Occurrence Handle10.1006/jeem.1993.1037
B. Copeland S. Taylor (2003) International Trade and the Environment: Theory and Evidence Princeton University Press Princeton
A. Dixit (1985) Tax Policy in Open Economies A. Auerbach M. Feldstein (Eds) Handbook of Public Economics North-Holland Amsterdam 313–74
Elbers, C., and Withagen, C. (2002a): “Environmental Regulation and International Trade: A General Equilibrium Approach.” In Recent Advances in Environmental Economic, edited by J. List and A. de Zeeuw. Cheltenham: Edward Elgar, pp. 98–118.
Elbers, C., and Withagen, C. (2002b): “Environmental Policy and Bertrand Competition: A General Equilibrium Approach.” In Equilibrium, Markets and Dynamics, edited by C. Hommes, R. Ramer and C. Withagen. Heidelberg: Springer, pp. 183–95.
C. Elbers C. Withagen (2003) Environmental Policy and International Trade: Are Policy Differentials Optimal? L. Marsiliani M. Rauscher C. Withagen (Eds) Environmental Policy in an International Perspective Kluwer Dordrecht 173–91
R. Gordon L. Bovenberg (1996) ArticleTitleWhy Is Capital so Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation American Economic Review 86 1057–75
E. Helpman P. Krugman (1985) Market Structure and Foreign Trade MIT Press Cambridge, MA
M. Hoel (1996) ArticleTitleShould a Carbon Tax be Differentiated Across Sectors? Journal of Public Economics 59 17–32 Occurrence Handle10.1016/0047-2727(94)01490-6
P. Kennedy (1994) ArticleTitleEquilibrium Pollution Taxes in Open Economies with Imperfect Competition Journal of Environmental Economics and Management 27 49–63 Occurrence Handle10.1006/jeem.1994.1025
P. Neary (2006) ArticleTitleInternational Trade and the Environment: Theory and Policy Linkages Environmental and Resource Economics 33 95–118 Occurrence Handle10.1007/s10640-005-1707-4
K. Palmer W. Oates P. Portney (1995) ArticleTitleTightening Environmental Standards: The Benefit-cost or the No-cost Paradigm? The Journal of Economic Perspectives 9 119–32
M. Rauscher (1994) ArticleTitleOn Ecological Dumping Oxford Economic Papers 46 822–40
M. Rauscher (1997) International Trade. Factor Movements, and the Environment Oxford University Press Oxford
S. Schaffer (1995) ArticleTitleOptimal Linear Taxation of Polluting Oligopolists Journal of Regulatory Economics 7 85–100 Occurrence Handle10.1007/BF01062781
R. Simpson (1995) ArticleTitleOptimal Pollution Taxation in a Cournot Duopoly Environmental and Resource Economics 6 359–69 Occurrence Handle10.1007/BF00691819
B. Spencer A. Brander (1983) ArticleTitleInternational R&D Rivalry and Industrial Strategy Review of Economic Studies 50 707–22 Occurrence Handle10.2307/2297771
A. Ulph (1999) Environment and Trade H. Folmer L. Gabel (Eds) Principles of Environmental Economics II Edward Elgar Cheltenham 479–528
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License ( https://creativecommons.org/licenses/by-nc/2.0 ), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
About this article
Cite this article
Withagen, C.A., Florax, R.J.G.M. & Mulatu, A. Optimal Environmental Policy Differentials in Open Economies under Emissions Constraints. J Econ 91, 129–149 (2007). https://doi.org/10.1007/s00712-007-0259-1
Received:
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00712-007-0259-1