Offshoring, trade and environmental policies: Effects of transboundary pollution

Keisuke Kawata and Yasunori Ouchida ()

No 3-8, IDEC DP2 Series from Hiroshima University, Graduate School for International Development and Cooperation (IDEC)

Abstract: This study develops a two-country model, Home and Foreign, with offshoring and environmental spillover. A final good producer in Home can produce (homogeneous) final goods using customized inputs produced by its partner-supplier in Foreign. The intermediate input price is determined by Nash bargaining, presenting a hold-up problem. Additionally, input production causes transboundary pollution. Home and Foreign governments can set trade taxes. Moreover, the Foreign government can set the environmental standard. This model demonstrates that, under no international policy agreement, both the environmental standard and the quantity of the intermediate input are lower than the first-best levels. This inefficiency persists even if both governments conclude an agreement.

Keywords: Offshoring; Intermediate input trade; Emission spillover; Environmental standard; Incomplete contract (search for similar items in EconPapers)
JEL-codes: F12 F13 F18 L24 Q56 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013-12
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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