Voluntary Environmental Agreements, Emission Taxes and International Trade: The Importance of the Timing of Strategies


Conrad, Klaus


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URL: https://ub-madoc.bib.uni-mannheim.de/1048
URN: urn:nbn:de:bsz:180-madoc-10483
Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: Discussion Papers / Institut für Volkswirtschaftslehre und Statistik ; Department of Economics, Universität Mannheim
Volume: 562
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Institut für Volkswirtschaftslehre und Statistik > Discussion Papers
Subject: 330 Economics
Classification: JEL: D43 F13 H23 ,
Subject headings (SWD): Wirtschaftspolitik , Emission , Steuer
Abstract: The purpose of the paper is to narrow the gap between the widespread use of voluntary agreements and research on the rationale of such approaches. A topical example are voluntary agreements of many industries to reduce carbon dioxide emissions because of global warming. If the industry anticipates that taxes and fees will be introduced in the coming years, it seems rational to act in advance in order to mitigate the tax levels. The conventional approach in strategic trade and tax models was to look at a two-stage game where governments set taxes first and then firms react. In such a policy regime the government is concerned about the international competitiveness of its firms and sets taxes below marginal damages. In this paper, we consider a policy regime with a reversed timing. Firms commit themselves in the face of emission taxes to abatement efforts and to lower levels of the environmentally intensive output. Then the government introduces the tax. Under this timing of strategies the tax is equal to marginal damage. Firms waive profit and reduce output in order to use less of the polluting input. The reward for this behavior will be a less strict use of policy instruments and hence lower abatement costs in the near future.
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Conrad, Klaus (1999) Voluntary Environmental Agreements, Emission Taxes and International Trade: The Importance of the Timing of Strategies. Open Access Discussion Papers / Institut für Volkswirtschaftslehre und Statistik ; Department of Economics, Universität Mannheim Mannheim 562 [Working paper]
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