Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 755: Environmental Policy and Transboundary Externalities - Coordination and Commitment in Open Economies

Lars Persson ()
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Lars Persson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: This thesis consists of an introductory chapter and four papers, which relate to environmental policy in the presence of transboundary environmental damage. Paper [I] concerns public policy in a multi-jurisdiction framework with transboundary environmental damage. Each jurisdiction is assumed large in the sense that its government is able to inuence the world-market producer price of the externality-generating good. This gives rise to additional incentives of relevance for national public policy in the non-cooperative Nash equilibrium. With the uncoordinated equilibrium as the reference case, the welfare eects from coordinated changes in public policy variables are analyzed. Paper [II] analyses welfare eects of coordinated changes in environmental and capital taxation in the presence of transboundary environmental externalities and wage bargaining externalities. In the wage bargaining between rms and labor unions, rms use the threat of moving abroad to moderate wage claims, which means that domestic policy inuences wage formation abroad. The specic framework implies welfare eects of policy coordination that correspond to each of the respective international interaction mentioned above. In paper [III], national governments face political pressure from environmental and industrial lobby groups, while pollution taxes are determined in an international negotiation. It is shown that a general increase in the environmental concern and the weight the governments attach to social welfare both tend to increase the pollution tax. However, allowing for asymmetries between the countries means that a general increase in the environmental concern has the potential to reduce the pollution tax. Paper [IV] studies national environmental policies in an economic federation characterized by decentralized leadership. The federal government sets emission targets for each member country, which are implemented by the national governments. Although all national governments have commitment power vis-à-vis the federal government, one of them also has commitment power vis-à-vis the other member countries. This creates incentives to act strategically toward the federal government, as well as toward other members.

Keywords: environmental policy; transboundary externalities; lobbying; international negotiations; policy coordination; endogenous world-market prices; optimal taxation; economic federation

JEL-codes: D62; F18; H21; H23; H70; J51

164 pages, November 11, 2008

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