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Environmental standards in a large open economy revisited

Author

Listed:
  • Thomas Eichner

    (University of Hagen)

  • Rüdiger Pethig

    (University of Siegen)

Abstract

Oates and Schwab (J Public Econ 35:333–354, 1988) consider an economy with mobil capital and jurisdictions that suffer from local pollution. They show that welfare-maximizing jurisdictions implement the first-best, if they take prices as given and have at their disposal a capital tax and an environmental standard. Petchey (J Public Econ Theory 17:461–467, 2015) claims that the efficiency result of Oates and Schwab can be extended to a large price-influencing jurisdiction. To enable efficiency comparisons, we expand his model by a second jurisdiction with price-elastic excess supply of capital and prove that his large price-influencing jurisdiction sets an environmental standard and a capital tax that fail to be (Pareto) efficient. Thereby we clarify that and why the allocation of emissions is inefficient, in general, although the allocation rule for emissions is not.

Suggested Citation

  • Thomas Eichner & Rüdiger Pethig, 2018. "Environmental standards in a large open economy revisited," Letters in Spatial and Resource Sciences, Springer, vol. 11(2), pages 157-166, July.
    • Handle: RePEc:spr:lsprsc:v:11:y:2018:i:2:d:10.1007_s12076-018-0207-4
    DOI: 10.1007/s12076-018-0207-4
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    References listed on IDEAS

    as
    1. Jeffrey Petchey, 2015. "Environmental Standards in a Large Open Economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 461-467, June.
    2. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
    3. Pethig, Rudiger, 1976. "Pollution, welfare, and environmental policy in the theory of Comparative Advantage," Journal of Environmental Economics and Management, Elsevier, vol. 2(3), pages 160-169, February.
    4. Eichner, Thomas & Pethig, Rüdiger, 2018. "Competition in emissions standards and capital taxes with local pollution," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 191-203.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Pollution; Environmental standards; Mobile capital; Taxes;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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