Strategic Environmental Policy Under Free Trade with Transboundary Pollution

Shiva Sikdar and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

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.

Keywords: free trade; transboundary pollution; environmental policy; carbon leakage; race to the bottom (search for similar items in EconPapers)
JEL-codes: D62 F18 H23 Q56 (search for similar items in EconPapers)
Date: 2008-05-01
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-int
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Citations: View citations in EconPapers (1)

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http://www2.econ.iastate.edu/papers/p3885-2008-05-01.pdf (application/pdf)

Related works:
Journal Article: Strategic Environmental Policy under Free Trade with Transboundary Pollution (2011)
Working Paper: Strategic environmental policy under free trade with transboundary pollution (2011)
Working Paper: Strategic environmental policy under free trade with transboundary pollution (2010)
Working Paper: Strategic Environmental Policy Under Free Trade with Transboundary Pollution (2007)
Working Paper: Strategic environmental policy under free trade with transboundary pollution (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12931

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