Philipp M. Richter
Environmental policies are often designed to pursue different goals: In imperfectly competitive global markets, governments have an incentive to set environmental policies below marginal damage in order to induce domestic firms to capture foreign rents and international market shares. Seminal contributions to this literature by Conrad (1993), Kennedy (1994), Barrett (1994), and numerous successors rely on partial equilibrium models of oligopolistic competition. By contrast, this paper integrates the analysis of strategic environmental policy into a reciprocal trade model of general oligopolistic equilibrium (GOLE; Neary, 2009). An important general equilibrium effect becomes apparent: Trade liberalisation affects the markup of firms via a change in the wage rate, and hence alters environmental policies, which are potentially tightened in both open and closed sectors.
Keywords: Strategic Environmental Policy, Trade and Environment, General Oligopolistic Equilibrium, Trade Liberalization
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