ENVIRONMENTAL PROTECTION WITH POLICIES FOR SALE

This paper generalizes the Grossman-Helpman political economy model to characterize the structure of environmental and industry protection for a small open economy when domestic and/or trade policies are the outcome of a noncooperative common agency game between sector-specific producer lobbies and the government. For a consumption externality, the political equilibrium results if domestic and trade policies are available, are production-enhancing protection of organized industries, but the same environmental protection as Pigouvian taxes. Subsidies to organized industries counterbalance environmental taxes when there is a production externality, and it is ambiguous whether domestic or trade policy alone leads to more environmental protection. In addition, this paper demonstrates that the original Grossman-Helpman results arise as a special case that rests on the assumption that only trade policies are available to the government.


Issue Date:
1997
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/51207
Total Pages:
33
Series Statement:
Working Paper
97-2




 Record created 2017-04-01, last modified 2017-08-22

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