Strategic Environmental Policy and International Trade - The Role of Market Conduct

Alistair Mitchell Ulph

No 1065, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper I analyse the incentives for governments and producers to act strategically in imperfectly competitive markets when there is Bertrand competition. Strategic behaviour by governments takes the form of distortions to their environmental policy from the first-best rule of equating marginal damage and marginal abatement costs. Strategic behaviour by producers implies inefficient investment in R&D. I contrast the outcomes with Bertrand competition with those in Cournot competition, which I analysed in an earlier paper (Ulph (1993a)). The main findings are: when only governments act strategically, they will set too tough environmental policy and the distortion will be greater if governments use emission standards rather than emission taxes; both results are the opposite of what happened in Cournot competition. When only producers act strategically, they under-invest in R&D (in Cournot they over-invest), but it is not possible to give a universal ranking of policy instruments. When governments and producers act strategically, this reduces the extent of government distortion of environmental policy, which is the same result as with Cournot, but for very different reasons; when governments use emission taxes then with Bertrand competition they set taxes below the first-best level, the reverse of what happens when only governments act strategically.

Keywords: Environmental Policy; Imperfect Competition; International Trade; Market Conduct; Strategic Behaviour (search for similar items in EconPapers)
JEL-codes: F12 F13 H23 Q28 (search for similar items in EconPapers)
Date: 1994-11
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1065 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1065

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1065

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().