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| Title: | Environment, Welfare and Gains from Trade: A North-South Model in General Equilibrium |
| Authors: | Diao, Xinshen
Roe, Terry |
| Issue Date: | 1995 |
| Series/Report no.: | Bulletin 95-4 |
| Abstract: | The effects of environment on trade and welfare are analyzed in a modified
Heckscher-Ohlin framework using a quasi-homothetic preferences to account for differences in
countries' expenditure shares on health. Three types of pollution, local-disembodied, globaldisembodied
and embodied, result as a by-product of inputs used in production. For each case,
the Walrasian, Pareto optimal and the Regulators' problem are analyzed. The optimal tax is
shown to improve each country's welfare if the country is small in the world market. Otherwise,
changes in the terms of trade may cause one country to be made better off at the expense of the
other. Interdependence for the global-disembodied case is explored using a one-shot Nash game.
For the embodied pollution, taxing the polluting input only can cause a decline in welfare when
the polluting input is intensively used. Instead, a tax on the polluting input in combination with
a subsidy to the non-polluting input is optimal. In general, the results suggest compensatory
payments may be required to encourage abatement policies. Contrary to other approaches, an
abatement policy does not necessarily decrease a country's comparative advantage, i.e., reduce
exports of the polluting sector. |
| URI: | http://purl.umn.edu/7517 |
| Institution/Association: | University of Minnesota>Economic Development Center>Bulletins |
| Total Pages: | 46 |
| Language: | English |
| Collections: | Bulletins
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| edc95-04.pdf | 1703Kb | PDF | View/Open |
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