Abstract
This paper analyses the implications of international trade for non-cooperative environmental policy in the case of local production externalities. A particular focus is on the potential effects of regulations on the variety of goods and the resulting international spillover caused by trade. A tougher domestic standard negatively affects the utility of the households abroad, since such a policy reduces their variety of imports (due to fewer domestic product inventions) or their consumption of each imported brand (due to higher import prices). Ignoring the negative spillover, non-cooperative governments implement inefficiently strict standards in equilibrium. In contrast to this clear-cut inefficiency result, the impact of international trade on the state of the environment is ambiguous.
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Haupt, A. Environmental Policy in Open Economies and Monopolistic Competition. Environ Resource Econ 33, 143–167 (2006). https://doi.org/10.1007/s10640-005-2645-x
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DOI: https://doi.org/10.1007/s10640-005-2645-x