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Welfare Ranking of Environmental Policies in the Presence of Capital Mobility and Cross-border Pollution

Nikos Tsakiris (), Panos Hatzipanayotou () and Michael Michael

No 1513, DEOS Working Papers from Athens University of Economics and Business

Abstract: We construct a general equilibrium model of two regions with cross-border pollution, and with inter-regional (RCM) or international (ICM) capital mobility. Each region uses emission taxes, or intra- regionally, or inter-regionally tradable emission permits to reduce pollution. We show that the non-cooperative settings of all three instruments are always inefficient relative to their cooperative settings. When regions are symmetric, then (i) with RCM the non-cooperative setting of intra-regionally tradable emissions permits is welfare superior to that of the other two instruments, and (ii) with ICM the non-cooperative settings of intra-regionally tradable emission permits and of emission taxes are equivalent and superior to that of inter-regionally tradable emission permits.

Keywords: Cross-border pollution; Tradable emission permits; Capital mobility; Welfare ranking (search for similar items in EconPapers)
JEL-codes: F18 F21 H21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
Date: 2015-07-17
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