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Tradable Permits vs Ecological Dumping

Author

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  • Antoniou, Fabio
  • Hatzipanayotou, Panos
  • Koundouri, Phoebe

Abstract

In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.

Suggested Citation

  • Antoniou, Fabio & Hatzipanayotou, Panos & Koundouri, Phoebe, 2010. "Tradable Permits vs Ecological Dumping," Sustainable Development Papers 59374, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemdp:59374
    DOI: 10.22004/ag.econ.59374
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    Cited by:

    1. Ziesemer, Thomas & Michaelis, Peter, 2011. "Strategic environmental policy and the accumulation of knowledge," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 180-191, June.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment

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