Trade and global pollution under dynamic games of environmental policy

Akihiko Yanase

    Research output: Chapter in Book/Report/Conference proceedingChapter

    Abstract

    This paper examines the effects of international trade in a model that incorporates global pollution that accumulates over time because of production emissions in each country. Two symmetric countries, which produce and consume identical goods and may have trade relations with each other, are assumed. The world market is assumed to be integrated for the case of trading equilibrium. The case of segmented markets is also examined. Each country's government controls pollution emitted by national firm in their production process by means of emission tax policy. Because pollution accumulates over time, when setting emission tax rates, governments consider their long-run effect on pollution as well as their impact on non-environmental welfare. Both cooperative and noncooperative solutions for the dynamic policy problem are examined. If countries cooperate in their national environmental policies, it is shown that autarky and free trade generate the same outcome, which is characterized as a unique and stable optimal path. In other words, trade has no effect on the world economy or the global environment. If countries determine their national environmental policies noncooperatively, the policy game results in multiple Nash equilibria, depending on governments' strategies for environmental policy and whether there is autarky or trade. Focusing on particular long-run equilibrium solutions, it is shown that free trade increases the pollution stock. In addition, trade can increase the nonenvironmental welfare but reduces the total welfare in the steady state.

    Original languageEnglish
    Title of host publicationPollution Control
    Subtitle of host publicationManagement, Technology and Regulations
    PublisherNova Science Publishers, Inc.
    Pages125-149
    Number of pages25
    ISBN (Print)9781616685843
    Publication statusPublished - 2011 Jan 1

    Keywords

    • Differential games
    • Environmental policy
    • Global pollution
    • International oligopoly
    • International trade

    ASJC Scopus subject areas

    • Environmental Science(all)

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