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Environmental Regulation in the Shadow of International Trade Law: A Principal-Agent Analysis

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  • Urpelainen, Johannes

Abstract

While environmental regulations can serve a valuable societal purpose, they also enable hidden protectionism. I analyze a principal-agent model of environmental regulation wherein citizens are the uninformed principal and government is the informed agent. In the model, import competitors may acquire protectionist benefits from stringent environmental regulations because foreign imports could potentially cause environmental damage. The analysis shows that while international trade law can constrain environmental regulations, it can also sometimes increase the level of environmental regulation if the citizens are sufficiently worried about the effect of protectionism on consumer prices. Additionally, international trade law will be beneficial to the citizens whenever it does not invalidate too many environmental regulations.

Suggested Citation

  • Urpelainen, Johannes, 2012. "Environmental Regulation in the Shadow of International Trade Law: A Principal-Agent Analysis," Strategic Behavior and the Environment, now publishers, vol. 2(3), pages 193-215, September.
    • Handle: RePEc:now:jnlsbe:102.00000020
    DOI: 10.1561/102.00000020
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    More about this item

    Keywords

    Environmental regulation; International trade; International institutions; Principal-agent models; Democratic accountability;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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