A Dynamic Approach to the Environmental Effects of Trade Liberalization

Mehdi Fadaee (m.fadaee@imps.ac.ir)

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: In this paper, we develop a two-country world di erential game model with a polluting firm in each country where there is transportation cost to investigate the equilibrium of the game between firms when they decide to trade or not and to see under which conditions social welfare coincides with the market equilibrium. We find out that in the static game bilateral trade is always the equilibrium for any acceptable transportation cost while in the dynamic game social planner can prevent the inefficient outcome by imposing and determining the proper amount of Pigouvian taxation.

JEL-codes: C73 F18 H23 Q56 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-env and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp746

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