Efficient Environmental Standards with Imperfect Competition
Economists have been concerned that sovereign communities may distort environmental policies to attract mobile capital. This paper provides something of a challenge to this idea. It does so by extending the model of Oates and Schwab (1988) to allow the supply of capital to a state, whether acting...
| Main Author: | |
|---|---|
| Format: | Working Paper |
| Published: |
Centre for Research in Applied Economics
2013
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/20.500.11937/11533 |
| _version_ | 1848747831860396032 |
|---|---|
| author | Petchey, Jeffrey |
| author_facet | Petchey, Jeffrey |
| author_sort | Petchey, Jeffrey |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Economists have been concerned that sovereign communities may distort environmental policies to attract mobile capital. This paper provides something of a challenge to this idea. It does so by extending the model of Oates and Schwab (1988) to allow the supply of capital to a state, whether acting independently or strategically as part of a federation, to be less than perfectly elastic due to capital market imperfections. This gives the state an incentive to distort its policies in order to manipulate its domestic capital price relative to the given world return for capital. The key result is to show that the state always prefers to use a dedicated capital tax to achieve its desired domestic price, leaving environmental standards at efficient levels. Only when the state is denied access to a capital tax will it resort to distorting environmental standards. Thus, distortions to environmental standards arise from restrictions on the set of policy instruments rather than non-cooperative behavior or capital mobility per se, at least when the incentive to distort policy arises from capital market imperfections. |
| first_indexed | 2025-11-14T06:55:24Z |
| format | Working Paper |
| id | curtin-20.500.11937-11533 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T06:55:24Z |
| publishDate | 2013 |
| publisher | Centre for Research in Applied Economics |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-115332017-02-28T01:33:32Z Efficient Environmental Standards with Imperfect Competition Petchey, Jeffrey race to the bottom mobile capital Emissions environmental standards taxes Economists have been concerned that sovereign communities may distort environmental policies to attract mobile capital. This paper provides something of a challenge to this idea. It does so by extending the model of Oates and Schwab (1988) to allow the supply of capital to a state, whether acting independently or strategically as part of a federation, to be less than perfectly elastic due to capital market imperfections. This gives the state an incentive to distort its policies in order to manipulate its domestic capital price relative to the given world return for capital. The key result is to show that the state always prefers to use a dedicated capital tax to achieve its desired domestic price, leaving environmental standards at efficient levels. Only when the state is denied access to a capital tax will it resort to distorting environmental standards. Thus, distortions to environmental standards arise from restrictions on the set of policy instruments rather than non-cooperative behavior or capital mobility per se, at least when the incentive to distort policy arises from capital market imperfections. 2013 Working Paper http://hdl.handle.net/20.500.11937/11533 Centre for Research in Applied Economics fulltext |
| spellingShingle | race to the bottom mobile capital Emissions environmental standards taxes Petchey, Jeffrey Efficient Environmental Standards with Imperfect Competition |
| title | Efficient Environmental Standards with Imperfect Competition |
| title_full | Efficient Environmental Standards with Imperfect Competition |
| title_fullStr | Efficient Environmental Standards with Imperfect Competition |
| title_full_unstemmed | Efficient Environmental Standards with Imperfect Competition |
| title_short | Efficient Environmental Standards with Imperfect Competition |
| title_sort | efficient environmental standards with imperfect competition |
| topic | race to the bottom mobile capital Emissions environmental standards taxes |
| url | http://hdl.handle.net/20.500.11937/11533 |