Competitive Dominance of Emission Trading Over Pigouvian Taxation in a Globalized Economy

Seung-Gyu Sim () and Hsuan-Chih Lin
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Seung-Gyu Sim: University of Wisconsin-Madison, http://www.wisc.edu/

No 16-A004, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: It is well-known that the Pigouvian taxation scheme and emission trading scheme (delegating the emission pricing authority to the market mechanism) offer equivalent incentives to reduce emissions in various autarky settings. In contrast, we demonstrate that in a globalized economy with international trade and cross border pollution, adopting the latter is the strict dominant strategy of each country, and global welfare is maximized when all countries adopt the latter. Adopting the latter incentivizes the other country to tighten its environmental regulation without concern for excessive shrink of domestic production and aggravation of cross border pollution from the adopting country. JEL Classification: H23, L51, Q56, Q58

Keywords: Emission Trading Scheme; Pigouvian Taxation; International Trade; Cross Border Pollution (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-pr~ and nep-reg
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Related works:
Journal Article: Competitive dominance of emission trading over Pigouvian taxation in a globalized economy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:sin:wpaper:16-a004

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