subsidizing renewable energy under capital mobility abstract this paper provides a rationale for subsidizing green renewable energy production within a multi country model where energy is produced with mobile capital in green and dirty production we investigate the countries decentralized choice of emissions taxes and green energy subsidies without green subsidies the emissions tax is set inefficiently low since each country ignores the environmental externality inflicted on other countries and since the emissions tax leads to a capital outflow to other countries when the green subsidy is available countries choose a positive subsidy rate since this reduces the overall distortion of the tax subsidy system in doing so each country internalizes a larger part of the environmental externality as a consequence capital is relocated from the dirty into the clean sectors and reduces global pollution hence the subsidy is not only beneficial for the country which imposes it but also for all countries

environmental federalism and environmental liability abstract environmental federalism considers what level of government should optimally regulate pollution this paper addresses this question for accidental pollution which government regulates through the ex post liability regimes of either negligence or strict liability we find that decentralizing the choice between these regimes does not in general induce the socially optimal outcome when firms can pay all damages all regions may choose negligence and impose an overly strict standard of due care when firms may be bankrupted by damages all regions may choose strict liability which induces too little care in addition asymmetric equilibria are possible in which some regions choose negligence others strict liability combining negligence with a pigovian tax or strict liability with a bonding requirement can align regional authorities incentives with those of a central government

equilibrium pollution taxes in open economies with imperfect competition abstract this paper argues that imperfect competition in global markets creates a strategic interaction between governments that can lead to the inefficient distortion of pollution taxes this distortion can be decomposed into a rent capture effect and a pollution shifting effect the rent capture effect lowers equilibrium taxes as each country attempts to gain a competitive advantage over its trading partner and thereby capture foreign rent through net exports the pollution shifting effect raises equilibrium taxes as each country attempts to transfer production and its associated pollution to the other country this effect vanishes if pollution is perfectly transboundary because shifted pollution causes as much damage to the domestic environment as does domestic pollution the net effect on symmetric equilibrium taxes is negative except in the special case of perfect competition with no transboundary pollution in this case the two effects are mutually offsetting and the nash equilibrium is efficient when pollution is at least partially transboundary there also arises the usual transboundary externality and this reinforces the negative net strategic effect giving rise to equilibrium taxes that are lower than what is globally efficient

environmental policy with endogenous plant locations in a game between the governments of two countries each chooses its own environmental policy the nash equilibria of the game are generally not pareto optimal on the one hand each country may want to attract industry giving it an incentive to choose low environmental taxes or standards on the other hand if disutility from pollution is sufficiently high each country might prefer that a firm locates only in other countries this effect tends to make the environmental policy under non cooperation stricter than it would be with cooperation

environmental management policy under international carbon leakage this article studies environmental management policy when two fossil fuel consuming countries noncooperatively regulate greenhouse gas emissions through emission taxes or quotas the presence of carbon leakage caused by fuel price changes affects the tax quota equivalence we explore each country s incentive to choose a policy instrument in a two stage policy choice game and find subgame perfect nash equilibria this sheds new light on the questions of which policy instrument is more stringent and of why adopted instruments could be different among countries in particular our result suggests a reason why developing countries tend to employ emission taxes whereas developed countries tend to adopt quotas

optimal emission tax with endogenous location choice of duopolistic firms this study explores an optimal pre committed or ex ante environmental tax policy in a three stage game in which polluting firms strategically choose the location of their plants after the government has chosen the optimal emission tax rate we show not only that the optimal emission tax is non decreasing with the declining cost of relocation e g setup or fixed costs or else the progress of globalization but also that the firms may move back their relocated plants to the home country causing the resulting welfare to decline as a consequence the domestic welfare varies in a non monotonic way we also show that such a counterintuitive non monotonic relationship does not arise under time consistent ex post emission taxes

dynamic climate policy under firm relocation the implications of phasing out free allowances the allocation of free allowances for firms within the european union emissions trading scheme was found to lead to substantial overcompensation which is why some stakeholders recently called for phasing out of free allowances in the near term this paper analyzes the consequences of phasing out free allowances in a two period model when one country unilaterally implements climate policies a carbon price induces firms to invest in abatement capital but may lead to the relocation of some firms the regulator addresses the relocation problem by offering firms transfers i e free allowances conditional on maintaining the production in the regulating country if transfers are unrestricted in both periods then the regulator implements the first best by equalizing the carbon price with the marginal environmental damage and using transfers to prevent any relocation however if transfers in the future period are restricted the planner optimally implements a declining carbon price path with the first period price exceeding the marginal environmental damage a high carbon price triggers investments in abatement capital and thus creates a lock in effect with a larger abatement capital stock firms are less affected by carbon prices in the future and therefore less prone to relocate in the second period

effective protection redux abstract this paper rehabilitates effective protection for use in political economy in general equilibrium the usual definition corresponds to no economically interesting magnitude the effective rate of protection for sector j is redefined here as the uniform tariff which is equivalent to the actual differentiated tariff structure in its effect on rents to residual claimants in sector j it permits political economic ranking of how much protection is given across sectors since higher uniform tariffs imply higher losses of welfare sacrificed to the interest groups demonstrating operationality the numerical results for the us economy for the old and new concepts are not significantly correlated

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

trade policy in burundi reform without political stability this paper evaluates burundi s progress with trade policy reform by comparing earlier analyses of burundi s trade policies undertaken in the 1980s with that of the wto s recent trade policy review since the mid 1980s burundi has been trying to reform its trade and macroeconomic policies against the background of continuous socio political tensions and periodic outbreaks of violent tribal conflict a then and now comparison allows us to assess both the extent of the trade reforms and of the economic return to those reforms it is evident that there has been a significant rationalisation and simplification of trade policy burundi has eliminated most quantitative import restrictions and reduced the average level and range of its tariffs the scope for allocative distortions undesirable redistributive effects and for impediments to investment and growth has been substantially reduced however a return to reform in terms of export growth or diversification and of overall economic growth is not discernible yet this is unsurprising given the scale of the economic disruption sustained socio political stability among other things will be required to induce the investment in human and physical capital needed for a positive return to trade policy reform

is there the threshold effect of cigarette price on smoking prevalence a cross country panel data analysis this article shows new cross country evidences by empirically investigating the joint effects of cigarette price levels and joining the world health organization framework convention on tobacco control who fctc on smoking prevalence in 74 countries over the period of 2000 2003 2005 and 2006 we assessed cigarette price elasticity for three national income levels using different databases on cigarette price from the economist intelligence unit eiu demographic and socioeconomic country characteristics from the world bank and adjusted smoking prevalence rates published by various yearly who reports on the global tobacco epidemic from 2000 to 2010 a panel threshold regression was used to capture the nonlinear effects that cigarette prices on smoking prevalence at the three national income levels endogenously determined by estimation our findings supported the evidence that joining the who fctc would have a positive effect on reducing cross country smoking prevalence especially among countries with l

rational addiction to caffeine an analysis of coffee consumption it is common knowledge that coffee tea and other beverages that contain caffeine are habit forming a recent medical study confirms that caffeine is strongly addictive with subjects exhibiting syndromes of intoxication withdrawal and dependence strain et al 1994 p 1043 that study concludes that the effect is physiological not just psychological it is of interest to ask whether the addictive nature of the most widely used psychoactive substance in the world is apparent from data on consumption there are several economic models of addiction among them the rational addiction model of becker and murphy 1988 stands out because of its simplicity and consistency with economic theory in this model the utility a consumer derives from consumption depends not only on the quantity c that is consumed but also on the degree of addiction at addiction is a form of human capital taking the form of a possibly harmful rather than beneficial stock variable it is increased as a by product of consumption and it gradually depreciates as time passes thus current consumption affects future choices consuming the good now increases its desirability in the future the becker murphy model is rational and forward looking in that the consumer is aware of these future effects and weighs them in making the current consumption choice this is in strong contrast to models that are based on assumptions of myopia and nonrational behavior an implication of the model is that this forward looking behavior can be detected in the data theory predicts that consumption data

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

is environmental dumping greater when plants are footloose concerns have been expressed that in a global market place with mobile capital national governments will have incentives to set weak environmental policies environmental dumping to protect the international competitiveness of their domestic firms and that these incentives are particularly strong in industries where plants may be relatively footloose so that governments are concerned to prevent capital flight in this paper we investigate whether the mobility of firms does indeed increase incentives for environmental dumping we do this by taking a simple model of imperfect competition and comparing the environmental policies that would be set by non cooperative governments for two different move structures where governments set environmental policies after firms decide where to locate the exogenous location case or market share game and where governments set environmental policies before firms decide where to locate the endogenous location case or location game this raises an important modelling issue for it is natural in the market share game that governments would set different environmental policies depending on the number of firms that locate in their countries and if we are to compare just the effect of different move structures then in the location game we should also allow governments to condition their environmental policies on the number of firms that locate in them contrary to previous models of the location game where governments set a single instrument independent of the number of firms that locate in their countries we show that the extent of environmental dumping in the market share game may be greater or less than in the location game depending in particular on the degree of substitution between products of the firms and hence the intensity of market competition we also show that there is more environmental dumping in the location game when governments use a single instrument than when they condition their instruments on the number of firms that locate in their countries

what role for the epas in the caribbean the aim of this paper is to consider the possible implications of an epa between the eu and the caribbean the focus is on the caribbean economies and on the question of what form of epa might be pro development and pro poor for the region the discussion outlines the specificities of the caribbean region and some of the economies therein as well as detailing the key analytical issues which need to be considered the empirical analysis focuses on examining patterns of trade by product and geographical source at a highly detailed level of disaggregation the analysis suggests that future epa arrangements are more likely to lead to significant trade diversion as opposed to trade creation or trade reorientation mfn liberalisation would serve to minimise trade diversion but in turn is likely to lead to greater adjustment costs if the epas are to be pro development and pro poor than maintaining increasing levels of market access to the eu and ensuring appropriate levels of assistance and aid will be critical

taxes and subsidies for pollution intensive industries as trade policy abstract this paper constructs a model of international oligopoly with negative externalities in production in which optimal environmental policy responses to foreign emission tax and subsidy programs can be calculated it is shown that by granting subsidies for abatement efforts or for a heavily taxed polluting input domestic net welfare is improved by capturing a greater share of the world market since the subsidy programs are supposed to improve the quality of the global environment they can be justified on environmental grounds in addition we show that a pigouvion emission tax restores efficiency in natural resource allocation whereas subsidy programs are in principle used as instruments in imperfectly competitive international markets

narrow and broad perspectives on trade policy and trade costs how to facilitate trade in madagascar madagascar is a high trade cost and relatively closed economy the wto s latest trade policy review tpr for the country like all tprs concentrates on border sources of trade costs those induced by trade policy instruments such as tariffs or implicit taxes imposed by slow and costly customs procedures or trade documentation requirements this narrow focus for trade policy and facilitation misses the substantive within and beyond the border sources of trade costs experienced by traders in a country like madagascar this paper illustrates the nature and significance of a narrow and broad view of trade costs and trade facilitation for this relatively remote and internally land locked economy

greenhouse gas emission controls and firm locations in north south trade this paper studies greenhouse gas emission ghg controls in the presence of international carbon leakage through international firm relocation in a new economic geography model with two countries north and south only north sets a target for ghg emissions we compare the consequences of emission quotas and emission taxes under trade liberalization on location of two manufacturing sectors with different emission intensities and degrees of carbon leakage with low trade costs further trade liberalization increases global emissions by facilitating carbon leakage regulation by quotas leads to spatial sorting resulting in less carbon leakage and less global emissions than regulation by taxes

greenhouse gas emission controls in an open economy to examine how greenhouse gas emission controls affect a country s industrial and trade structures this article presents an open economy model that has both ricardian and heckscher ohlin features we specifically compare emission quotas emission taxes and emission standards the patterns of production and trade critically hinge on those policy tools it is shown that a domestic emission control may lead to carbon leakage and may not reduce the world emissions and that emission standards may work as a hidden production subsidy toward an emission intensive industry

end of pipe or cleaner production how to go green in presence of income inequality and pro environmental behavior in this paper we consider a vertically differentiated duopoly model in which a green producer competes with a brown rival in a market in which consumers are environmentally concerned in particular consumers are assumed to value not only the intrinsic quality of a certain product but also its environmental impact this environmental valuation has a positional content consumers attach a positive attribute to the green product while penalizing the brown one in this context we consider the choice of the green firm between cleaner and end of pipe abatement efforts we find that the interplay between the intensity of market competition consumers income disparity and environmental concern can play a crucial role in directing the green producer towards one or the other technological choice more precisely the adoption of cleaner production technologies can be discouraged by low average income and by tough competition while it can be spurred by the moral social incentive towards pro environmental behavior

history regionalism and caricom trade a gravity model analysis abstract a gravity model is fitted to 17 annual cross sections 1980 1996 of bilateral trade data imports and exports between caricom member states and selected trading partners specifically the paper investigates the effects of regional integration colonial legacies and linguistic ties on caricom bilateral trade flows between member states and between member states and north american and european union countries the empirical results indicate that history and regionalism have had significant and strong effects on caricom trade additionally two traditional explanatory variables in gravity models income per capita and population have significant and positive effects on caricom trade while the distance between trading partners exerts the expected negative effect

environmental regulation induced foreign direct investment the last decade has witnessed a renewed interest in the relationship between environmental regulations and international capital flows however empirical studies have so far failed to find conclusive evidence for this so called pollution haven or race to the bottom effect where foreign direct investment fdi is assumed to be attracted to low regulation countries regions or states in this paper we present a simple theoretical framework to demonstrate that greater stringency in environmental standards can lead to a strategic increase in capital inflows which we refer to as environmental regulation induced fdi our result reveals a possible explanation for the mixed results in the empirical literature and provides an illustration of the conditions under which environmental regulations in the host country can affect the location decision of foreign firms

rationally addicted to drinking and smoking when modelling demand for addictive consumption goods the most widely used framework is the rational addiction model proposed by becker and murphy this paper extends the rational addiction model to include two addictive consumption goods alcohol and cigarettes and using aggregate annual time series on sales volumes for the period 1955 1999 estimates the aggregate demand for these goods in sweden where ols estimates are compared to gmm estimates allowing for possible endogeneity of lagged and lead consumption first the demand for alcohol and cigarettes are estimated as separate equations and it is found that alcohol demand is quite well described by the rational addiction model while the same is not true for cigarettes the own price elasticities are negative and alcohol demand is more elastic than cigarette demand the cross price elasticities are also negative showing that alcohol and cigarettes are complements since consumption of alcohol and cigarettes are probably simultaneous decisions th

convergence of inflationary shocks evidence from the caribbean in this paper we aim to shed some light on the inflation dynamics in the caribbean we analyse the inflation rates for twelve countries using various time series methods the results show that the inflation rates are mean reverting processes and that there is evidence of a convergence club in inflation rates within the area which contradicts previous studies our contribution implies a high degree of similarity in the dynamics of our target countries inflation rates

effective protection policy appraisal and trade policy reform when the effective protection concept was rst developed it was widely regarded as a key widely used especially in the context of policy reform and policy appraisal in developing countries this paper re appraises tmeasure of the structure of protection and became widely deployed it was however subject to a he concept reviews the extent of its application and discusses the factors behind its longevity as an investigative tool the theoretical critique on the grounds that it was essentially a partial equilibrium measure which could not be easily embedded ipaper concludes that the measure still has a role to play in evaluating the structure of protection n a general equilibrium framework notwithstanding this critique the concept has continued to be

true protection concepts and their role in evaluating trade policies in ldcs in many ldcs it is not uncommon to find incentives designed to encourage import substitution activities coexisting alongside incentives aimed at encouraging export activities this article evaluates a recent approach to evaluating commercial policy which among other things highlights some of the implications of simultaneously pursuing import substitution and export promotion the study develops a model which emphasises the incidence of protection and identifies the concept of true protection empirical results for a number of ldcs are discussed and the implications of these results evaluated in addition the article contrasts this approach with the effective protection approach to evaluating commercial policy

environmental policy when market structure and plant locations are endogenous abstract a two region two firm model is developed in which firms choose the number and the regional locations of their plants both firms pollute and market structure is endogenous to environmental policy there are increasing returns at the plant level imperfect competition between the home and the foreign firm and transport costs between the two markets at critical levels of environmental policy variables small policy changes cause large discrete jumps in a region s pollution and welfare as a firm closes or opens a plant or shifts production to from a foreign branch plant the implications for optimal environmental policy differ significantly from those suggested by traditional pigouvian marginal analysis

unilateral climate policy and foreign direct investment with firm and country heterogeneity we analyse the effects of unilateral climate policy in a two country two firm model with endogenous plant location and heterogeneity in both country size and firm s characteristics the effectiveness of unilateral climate policy is shown to depend on the joint effect of country and firm heterogeneity and on their impact on equilibrium location choice for being effective and not leading to production relocation in the long run unilateral climate policy should be moderate implemented by a sufficiently larger area and complemented by mechanisms promoting the international transfer of clean technologies the model indicates that the smaller area cannot take the lead in global climate mitigation for a protracted time period finally when the local community is not environmentally concerned the unilateral policy unambiguously makes the society worse off

pseudo panel data estimation technique and rational addiction model an analysis of cigarette alcohol and coffee demands we use a pseudo panel data approach to analyze the relationship between the consumptions of cigarettes alcohol and coffee in a rational addiction framework we find that while cigarette and coffee demands fit well with the rational addiction model alcohol demand conforms to a model with inventory effects the results suggest that alcohol consumption increases the marginal utility derived from consumption of cigarettes increasing alcohol prices would decrease not only the consumption of alcohol but also the consumption of cigarettes on the other hand increasing cigarette prices do not have the same effect on consumption of alcohol the cross price elasticity of coffee with respect to cigarette price is positive and significant which suggests that coffee substitutes for cigarettes when cigarette prices increase the cross price elasticity of alcohol with respect to coffee price is found to be negative and significant on the other hand morishima elasticities of substitution indicate that cigarette alcohol and coffee substitute each other along the indifference curve when relative prices change

policy appraisal and the structure of protection in a low income developing country problems of measurement and evaluation in burundi the article provides estimates of the structure of nominal and effective tariffs and the tariff equivalents of a set of quantitative import restrictions for burundi a low income data deficient developing country it carefully indicates the assumptions and limitations of the analysis the overall conclusion of the article is that not much significance can be attached to the estimates in a cardinal sense nevertheless recommendations about altering the structure of relative incentives can be justified where these are directed at increasing transparency and uniformity

tax competition in imperfectly competitive markets abstract the literature on strategic trade policy has shown that in imperfectly competitive markets governments have an incentive to subsidize exports of their own firms yet the consequence of the departure from laissez faire is a wasteful subsidy race in contrast this paper shows that even in imperfectly competitive markets there is a strong tendency for laissez faire to prevail the driving force is the firms willingness to exploit tax or subsidy differentials by relocating production a small tax differential induces firms to change their place of production the change in market structure has a negligible effect on the oligopoly equilibrium but a non negligible impact on government revenues when tax policy is non discriminatory governments gain lose by attracting all firms when production is taxed subsidized hence laissez faire is the only equilibrium since from the point of view of the two producing countries laissez faire nondiscrimination pareto dominates the intervention equilibrium discrimination nondiscrimination is a simple device to result in a mutual beneficial outcome

declining protection in developing countries fact or fiction this paper explores whether and to what extent evident trade reform falling average tariffs and rising exports in recent decades overstate the extent to which protectionism has declined in developing countries especially low income developing countries it identifies remaining significant protection especially of final manufactured goods this being associated with the presence of peak tariffs escalating tariff structures by stage of production and replacement of old forms of non tariff protection with new instruments of non tariff protection it also identifies significant protection arising from high international trade costs induced by inefficiencies in transportation ports and customs and from the growth of exports to preference receiving export markets