IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v27y2010i5p980-990.html
   My bibliography  Save this article

External balance, dynamic efficiency, and the welfare effects of unilateral and multilateral permit policies in interdependent economies

Author

Listed:
  • Bednar-Friedl, Birgit
  • Farmer, Karl

Abstract

This paper investigates domestic and foreign welfare effects of unilateral and multilateral permit policies in a two-country overlapping generations model with producer carbon emissions. We show that the welfare effects of a more stringent cap on emissions depend on the external balance of the policy implementing country, the dynamic (in)efficiency of the world economy, and the preference for environmental quality. Under dynamic efficiency, the global welfare loss of policy implementation in a net foreign creditor country is lower than of a policy in the net foreign debtor country. Moreover, although the country which has unilaterally implemented a permit policy would gain from a multilateral policy, the associated welfare loss for the other country is larger than that of a unilateral policy abroad.

Suggested Citation

  • Bednar-Friedl, Birgit & Farmer, Karl, 2010. "External balance, dynamic efficiency, and the welfare effects of unilateral and multilateral permit policies in interdependent economies," Economic Modelling, Elsevier, vol. 27(5), pages 980-990, September.
    • Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:980-990
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264-9993(10)00082-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, August.
    2. Tetsuo Ono, 2002. "The Effects of Emission Permits on Growth and the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 75-87, January.
    3. Michael Finus & Alejandro Caparrós (ed.), 2015. "Game Theory and International Environmental Cooperation," Books, Edward Elgar Publishing, number 15345.
    4. Frenkel, Jacob A & Razin, Assaf, 1986. "The International Transmission and Effects of Fiscal Policies," American Economic Review, American Economic Association, vol. 76(2), pages 330-335, May.
    5. Bréchet, Thierry & Lambrecht, Stéphane & Prieur, Fabien, 2009. "Intertemporal transfers of emission quotas in climate policies," Economic Modelling, Elsevier, vol. 26(1), pages 126-134, January.
    6. Persson, Torsten, 1985. "Deficits and intergenerational welfare in open economies," Journal of International Economics, Elsevier, vol. 19(1-2), pages 67-84, August.
    7. Jouvet, Pierre-André & Michel, Philippe & Rotillon, Gilles, 2005. "Equilibrium with a market of permits," Research in Economics, Elsevier, vol. 59(2), pages 148-163, June.
    8. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 205-234, March.
    9. Birgit Bednar-Friedl & Karl Farmer & Andreas Rainer, 2010. "Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(4), pages 495-520, December.
    10. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
    11. Jouvet, Pierre-Andre & Michel, Philippe & Rotillon, Gilles, 2005. "Optimal growth with pollution: how to use pollution permits?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1597-1609, September.
    12. Ghosh, Atish R., 1992. "Fiscal policy, the terms of trade, and the external balance," Journal of International Economics, Elsevier, vol. 33(1-2), pages 105-125, August.
    13. Bohringer, Christoph & Vogt, Carsten, 2004. "The dismantling of a breakthrough: the Kyoto Protocol as symbolic policy," European Journal of Political Economy, Elsevier, vol. 20(3), pages 597-617, September.
    14. Obstfeld, Maurice, 1989. "Fiscal deficits and relative prices in a growing world economy," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 461-484, May.
    15. Zee, Howell H, 1987. "Government Debt, Capital Accumulation, and the Terms of Trade in a Model of Interdependent Economies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 599-618, October.
    16. Lipton, David & Sachs, Jeffrey, 1983. "Accumulation and growth in a two-country model : A simulation approach," Journal of International Economics, Elsevier, vol. 15(1-2), pages 135-159, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Birgit Bednar-Friedl, 2012. "Climate policy targets in emerging and industrialized economies: the influence of technological differences, environmental preferences and propensity to save," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(2), pages 191-215, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Birgit Bednar-Friedl & Karl Farmer & Andreas Rainer, 2010. "Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(4), pages 495-520, December.
    2. Karl FARMER & Birgit BEDNAR-FRIEDL, 2009. "External Balance, Dynamic Efficiency, and the Welfare Costs of Unilateral Permit Policy in Interdependent Economies," EcoMod2009 21500029, EcoMod.
    3. Birgit Bednar-Friedl & Karl Farmer, 2009. "Internationally Coordinated Emission Permit Policies: An Option for Withdrawers from the Kyoto Protocol?," CESifo Working Paper Series 2764, CESifo.
    4. Karl FARMER & Birgit BEDNAR-FRIEDL, 2010. "Prospects for Climate Policy After Copenhagen? A Welfare Analysis of Bottom-Up Approaches in Interdependent Economies," EcoMod2010 259600053, EcoMod.
    5. Birgit Bednar-Friedl, 2012. "Climate policy targets in emerging and industrialized economies: the influence of technological differences, environmental preferences and propensity to save," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(2), pages 191-215, May.
    6. Marion Davin & Mouez Fodha & Thomas Seegmuller, 2023. "Pollution in a globalized world: Are debt transfers among countries a solution?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 21-38, March.
    7. Pierre-André Jouvet & Fabien Prieur, 2006. "Permis de pollution et contraintes politiques dans un modèle à générations imbriquées," EconomiX Working Papers 2006-21, University of Paris Nanterre, EconomiX.
    8. Karl Farmer & Matthias Schelnast, 2013. "Public Debt Reduction in Advanced Countries and Its Impact on Emerging Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(2), pages 167-188, May.
    9. Sichao Wei & David Aadland, 2021. "Pollution permits, green taxes, and the environmental poverty trap," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 1032-1052, May.
    10. Karl FARMER & Birgit FRIEDL & Andreas RAINER, 2008. "Unilateral Reduction of Emission Permits, Terms of Trade, Capital Accumulation, and Welfare in a World Economy: Theoretical and Numerical Analysis," EcoMod2008 23800036, EcoMod.
    11. Ken-Ichi Akao & Shunsuke Managi, 2013. "A Tradable Permit System in an Intertemporal Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(3), pages 309-336, July.
    12. Mihaela Onofrei & Anca-Florentina Gavriluţă (Vatamanu) & Ionel Bostan & Bogdan Florin Filip & Claudia Laurența Popescu & Gabriela Jitaru, 2020. "Impacts of the Allocation of Governmental Resources for Improving the Environment. An Empirical Analysis on Developing European Countries," IJERPH, MDPI, vol. 17(8), pages 1-18, April.
    13. Bréchet, Thierry & Jouvet, Pierre-André & Rotillon, Gilles, 2013. "Tradable pollution permits in dynamic general equilibrium: Can optimality and acceptability be reconciled?," Ecological Economics, Elsevier, vol. 91(C), pages 89-97.
    14. Coto-Martinez, Javier & Dixon, Huw, 2003. "Profits, markups and entry: fiscal policy in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 573-597, February.
    15. Karl Farmer, 2011. "Public-Debt Sustainability, Real Exchange Rate, and Country-Specific Saving Rates," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(1), pages 45-65, February.
    16. Thomas Eichner & Rüdiger Pethig, 2013. "Trade tariffs and self-enforcing environmental agreements," Volkswirtschaftliche Diskussionsbeiträge 161-13, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    17. Mireille Chiroleu-Assouline & Mouez Fodha, 2023. "Debt, tax and environmental policy [Dette, taxe et politique environnementale]," Post-Print halshs-04181981, HAL.
    18. repec:dau:papers:123456789/4069 is not listed on IDEAS
    19. Ponthiere, Gregory, 2016. "Pollution, unequal lifetimes and fairness," Mathematical Social Sciences, Elsevier, vol. 82(C), pages 49-64.
    20. Heugues, Mélanie, 2013. "The Global Emission Game: On the Impact of Strategic Interactions Between Countries on the Existence and the Properties of Nash Equilibria," Climate Change and Sustainable Development 162563, Fondazione Eni Enrico Mattei (FEEM).
    21. Javier Coto-Martinez & Huw Dixon, "undated". "Fiscal Policy in an Imperfectly Competitive Dynamic Small Open Economy," Discussion Papers 99/19, Department of Economics, University of York.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:980-990. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.