@article{Diao:7517,
      recid = {7517},
      author = {Diao, Xinshen and Roe, Terry L.},
      title = {Environment, Welfare and Gains from Trade: A North-South  Model in General Equilibrium},
      address = {1995},
      number = {1702-2016-139855},
      series = {Bulletin 95-4},
      pages = {46},
      year = {1995},
      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, global-disembodied
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.},
      url = {http://ageconsearch.umn.edu/record/7517},
      doi = {https://doi.org/10.22004/ag.econ.7517},
}