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Article
Strategic environmental policy under free trade with transboundary pollution
Economics Working Papers (2002–2016)
  • Shiva Sikdar, Iowa State University
  • Harvey E. Lapan, Iowa State University
Document Type
Working Paper
Publication Date
10-1-2007
Working Paper Number
WP #08017, October 2007; Old working paper #12931
Abstract
We analyze the effects of free trade on environmental policies in a strategic setting with transboundary pollution. Trade liberalization can result in a race to the bottom in environmental outcomes, making both countries worse off. With command and control policies (quotas), there is no race to the bottom. However, with internationally tradable permits, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. In our model carbon leakage alone, and not a terms of trade motive, drives countries to relax domestic environmental policy. Quantity-based tools strictly welfare-dominate price-based tools under free trade.
Disciplines
File Format
application/pdf
Length
30 pages
Citation Information
Shiva Sikdar and Harvey E. Lapan. "Strategic environmental policy under free trade with transboundary pollution" (2007)
Available at: http://works.bepress.com/harvey-lapan/25/