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Abstract:
Amartya Sen has shown how liberal rights can produce outcomes that everyone would prefer to avoid, thereby violating the Pareto principle. Similarly, Louis Kaplow and Steven Shavell identify potential conflicts between the Pareto principle and notions of "fairness," which give weight to considerations other than the overall utility level of each individual. Whereas Sen claims that the conflict he identifies shows the unacceptability of the Pareto principle as a universal rule, Kaplow and Shavell claim that the conflict they identify suggests a critique of all fairness notions (including liberal rights). I will argue in this paper that both claims are based on questionable assumptions. This paper proposes a middle course that I will argue resolves the supposed conflicts while remaining faithful to both liberal fairness principles and the Pareto principle. This paper will present an example of a social welfare function that can incorporate fairness principles and still remain faithful to the Pareto principle.

Abstract:
Amartya Sen has shown how liberal rights can produce outcomes that everyone would prefer to avoid, thereby violating the Pareto principle. Similarly, Louis Kaplow and Steven Shavell identify potential conflicts between the Pareto principle and notions of "fairness" which give weight to considerations other than the overall utility level of each individual. Whereas Sen claims that the conflict he identifies shows the unacceptability of the Pareto principle as a universal rule, Kaplow and Shavell claim that the conflict they identify suggests a critique of all fairness notions (including liberal rights). I will argue in this paper that both claims are based on questionable premises. This paper proposes a middle course that I will argue resolves the supposed conflicts while remaining faithful to both liberal fairness principles and the Pareto principle. This paper will present an example of a social welfare function that can incorporate fairness principles and still comply with the Pareto principle.

Abstract:
Although those who currently seek to reduce the level of employment-based and family-based immigration into the United States often advance the economic welfare of natives and distributive justice as reasons to restrict such immigration, neither objective provides a sound justification for reductions in such immigration. This article argues instead that the maximization of national economic welfare would more likely require levels of employment-based and family-based immigration that are higher than those allowed by current U.S. immigration laws. This article sheds light on this issue by taking economic principles commonly applied to international trade and applying them to trade in labor services.

This analysis derives the optimal immigration policy from the standpoint of national economic welfare, including both economic efficiency and distributive justice as objectives, and draws upon the latest empirical studies of the economic impact of immigration. In particular, this article describes the immigration policy that would maximize the welfare of natives. Trade principles indicate that the United States should eliminate its immigration quotas and other nontariff protectionist barriers and use immigration tariffs instead. A tariff could take the form of an income tax that discriminates between citizens and aliens. The optimal tariff is positive for immigrants with low incomes but is likely to be negative for immigrants with sufficiently high incomes. These results suggest that skilled immigration should be permitted (indeed encouraged) without quantitative or other protectionist restrictions and that unskilled immigration should be permitted without quantitative restrictions but subject to less generous fiscal policies than those applied to natives. The article concludes with proposals for liberalizing U.S. immigration laws. The article suggests that reciprocal concessions in international negotiations for liberalized trade in services can help overcome the political obstacles to the liberalized movement of labor into the United States.

Abstract:
This paper describes the immigration policy that would maximize the welfare of natives. Trade principles indicate that the United States should eliminate its immigration quotas and other non-tariff protectionist barriers and use immigration tariffs instead.

Abstract:
In this essay, I survey the economic theory and the most recent empirical evidence of the economic impact of international labor migration. Estimates of the magnitude of the gains that the world could enjoy by liberalizing international migration indicate that even partial liberalization would not only produce substantial increases in the world's real income but also improve its distribution. The gains from liberalization would be distributed such that if we examine the effects on natives in the countries of immigration, on the migrants, and on those left behind in the countries of emigration, we find that each group would enjoy significant gains. Furthermore, estimates of the impact of immigration on native workers in the United States indicate that only the least skilled native workers suffer adverse effects and that these effects are small. Thus, although the economic effects of immigration on native workers and distributive justice among natives are often advanced as reasons to reduce immigration, these concerns do not provide a sound justification for our restrictive immigration laws. Instead, the appropriate response to concerns about the distribution of income among natives is to increase the progressivity of our tax system. Protectionist immigration policies are not only likely to be relatively costly as an instrument for redistribution but also perverse from the standpoint of global justice. Thus, considerations of economic efficiency and distributive justice both militate in favor of liberalized immigration policies.

Immigration Law, Labor Economics, Economics, International Trade

Abstract:
The immigration of unskilled workers poses a fundamental problem for liberals. While from the perspective of the economic welfare of natives, the optimal policy would be to admit these aliens as guest workers, this policy would violate liberal egalitarian ideals. These ideals would treat these resident workers as equals, entitled to access to citizenship and to the full set of public benefits provided to citizens. If the welfare of all incumbent residents determines admissions policies, however, and we anticipate the fiscal burden that the immigration of the poor would impose, then our welfare criterion would preclude the admission of unskilled workers in the first place. Thus, our commitment to treat these workers as equals once admitted would cut against their admission and make them worse off than they would be if we agreed never to treat them as equals. A liberal can avoid this anomaly by adopting a cosmopolitan perspective that extends equal concern to all individuals, including aliens, which suggests liberal immigration policies for unskilled workers. The problem with this escape from the "immigration paradox" is the failure of most citizens to adopt such a cosmopolitan perspective. As long as citizens are reluctant to bear the fiscal burdens that cosmopolitan liberalism would impose, constraints of political feasibility may imply that guest-worker programs are the best policies that cosmopolitan liberals can obtain with respect to many unskilled alien workers.

Immigration, discrimination

Abstract:
Congress may soon restrict joint and several liability for cleanup of contaminated sites under Superfund. We explore whether this change would discourage settlements and is therefore likely to increase the program?s already high litigation costs. Recent theoretical research by Kornhauser and Revesz finds that joint and several liability may either encourage or discourage settlement, depending upon the correlation of outcomes at trial across defendants. We extend their two-defendant model to a richer framework with N defendants. This extension allows us to test the theoretical model empirically using data on Superfund litigation. We find that joint and several liability does not discourage settlements and may even encourage them. Our results support the model?s predictions about the effects of several variables, such as the degree of correlation in trial outcomes.

Abstract:
Congress may soon restrict joint and several liability for cleanup of contaminated sites under Superfund. We explore whether this change would discourage settlements and is therefore likely to increase the program's already high litigation costs. Recent theoretical research by Kornhauser and Revesz finds that joint and several liability may either encourage or discourage settlement, depending upon the correlation of outcomes at trial across defendants. We extend their two-defendant model to a richer framework with N defendants. This extension allows us to test the theoretical model empirically using data on Superfund litigation. We find that joint and several liability does not discourage settlements and may even encourage them. Our results support the model's predictions about the effects of several variables, such as the degree of correlation in trial outcomes.

Abstract:
In a recent article, Louis Kaplow and Steven Shavell claim that any non-welfarist method of policy assessment violates the Pareto principle. This comment presents a simple example of a Paretian method of policy assessment that refutes their claim. Unless we make questionable assumptions, such as axioms regarding independence and continuity of the social welfare function, the Pareto principle does not imply that we must make social choices based only on individuals' utilities.

Abstract:
In this paper, I analyze restrictions on immigration to the United States as a form of government-mandated employment discrimination against aliens. Through our immigration laws, we deny aliens access to valuable employment opportunities that are open to natives. Under our immigration and nationality laws, we base this discrimination explicitly on circumstances of birth beyond the control of the alien. I argue that immigration restrictions thereby violate our liberal ideals of equality, which require a cosmopolitan perspective that extends equal concern to all individuals. Furthermore, even if we assume a less demanding moral theory that allows us to give the interests of natives priority over the interests of aliens, it remains difficult to justify the employment discrimination required by our laws as ideal policies unless we consider the satisfaction of segregationist preferences to be a justification. The role of intolerance in supporting the adoption of immigration restrictions underscores a second sense in which the discrimination they embody violates our liberal ideals. We may promote the interests of natives, however, by restricting the access of unskilled alien workers to public benefits and to citizenship, which suggests liberalized guest-worker programs as a component of immigration reform. From the cosmopolitan liberal perspective, such programs would represent only a second-best improvement over the status quo, but worth supporting given constraints that make more ideal policies politically infeasible.

discrimination, immigration, employment, labor law

Abstract:
The dispute between the United States and the European Union (EU) regarding the EU ban on meat imports treated with hormones raises the question: How should regulators respond to public fears that are disproportionate to the risks as evaluated by experts in risk assessment? If regulators cannot eliminate public fears through education, then there is some social benefit from regulations that reduce the feared risks and thereby reduce public anxiety and distortions in behavior flowing from that anxiety. These considerations imply that we cannot simply ignore public fears that technocrats would deem "irrational." On the other hand, there is the danger that special interests may seek to generate consumer anxiety and lobby for regulations that serve their interests. I explore an approach that takes public fears seriously as social costs but also treats them as endogenous variables. I use this framework to evaluate risk regulations in terms of economic efficiency and suggest that the danger of inefficient regulation is most acute when domestic industries promote or sustain fears regarding imported products. From this perspective, the World Trade Organization ruling against the EU in the hormones dispute, based on the risk assessment requirements in the Agreement on Sanitary and Phytosanitary Measures, may represent a reasonable approach to guarding against the danger of regulatory protectionism, understood broadly to describe inefficient regulations that the importing country would not have adopted but for the foreign nationality of the producers disadvantaged by those regulations.

Abstract:
This paper develops a sequential bargaining model of the negotiations in corporate reorganizations under Chapter 11. We identify the expected outcome of the bargaining process and examine the effects of the legal rules that shape the bargaining. We determine how much value equity holders and debt holders receive under the Chapter 11 process, and compare the value obtained by each class with the 'contractual right' of that class. We identify and analyze three reasons that the equity holders can expect to obtain some value even when the debt holders are not paid in full. Finally, we show how the features of the reorganization process and of the company filing under Chapter 11 affect the division of value, and in this way we provide several testable predictions.

Abstract:
This paper develops a sequential bargaining model of the negotiations in corporate reorganizations under Chapter 11. We identify the expected outcome of the bargaining process and examine the effects of the legal rules that shape the bargaining. We determine how much value equityholders and debtholders receive under the Chapter 11 process, and compare the value obtained by each class with the "contractual right" of that class. We identify and analyze three reasons that the equityholders can expect to obtain some value even when the debtholders are not paid in full. Finally, we show how the features of the reorganization process and of the company filing under Chapter 11 affect the division of value, and in this way we provide several testable predictions.

Abstract:
Under an offer of settlement' rule, a party to a lawsuit may make a special offer to settle with the other party, such that if the other party rejects this offer, then this offer (unlike an ordinary offer) becomes part of the record in the case and may affect the allocation of litigation costs. Specifically, if the parties litigate to judgment, then the allocation of litigation costs may depend on how the judgment compares with the special offer. This paper develops a model of bargaining under offer-of-settlement rules that can be used to analyze the effect that such rules have on the terms of settlement. The analysis first sets forth a general principle that identifies the settlement amount under any such rule. We then apply this principle to derive the settlement terms under the most important of these rules, and we identify a large set of seemingly different rules that produce identical settlements. Our results have both positive and normative implications.

Abstract:
Under an "offer of settlement" rule, a party to a lawsuit may make a special offer to settle with the other party, such that if the other party rejects this offer, then this offer (unlike an ordinary offer) becomes part of the record in the case and may affect the allocation of litigation costs. Specifically, if the parties litigate to judgment, then the allocation of litigation costs may depend on how the judgment compares with the special offer. This paper develops a model of bargaining under offer-of settlement rules that can be used to analyze the effect that such rules have on the terms of settlement. The analysis first sets forth a general principle that identifies the settlement amount under any such rule. We then apply this principle to derive the settlement terms under the most important of these rules, and we identify a large set of seemingly different rules that produce identical settlements. Our results have both positive and normative implications.

Abstract:
Estimates of the magnitude of the gains that the world could enjoy by liberalizing international migration indicate that even partial liberalization would not only produce substantial increases in the world's real income but also improve its distribution. Although the economic effects of immigration on native workers and distributive justice among natives are often advanced as reasons to reduce immigration, these concerns do not provide a sound justification for our restrictive immigration laws. Instead, the appropriate response to concerns about the distribution of income among natives is to increase the progressivity of our tax system. Protectionist immigration policies are not only likely to be relatively costly as an instrument for redistribution but also perverse from the standpoint of global justice. I argue that liberal ideals require a global view of distributive justice and that recent attempts by some liberal theorists and philosophers to defend more limited conceptions of distributive justice that apply only within nations are all ultimately question-begging. Thus, I conclude that considerations of both economic efficiency and distributive justice militate in favor of liberalized immigration policies.

Law & Economics, Law & Philosophy, Jurisprudence, Law & Social Sciences, Law & the Global Community, Immigration Law, Moral & Political Philosophy, Economics

Abstract:

Abstract:
In response to claims that the threat of environmental liability under the Superfund law deters the acquisition of potentially contaminated sites (or brownfields) for redevelopment, the federal government has adopted programs to protect purchasers from liability. This protection may be unwarranted, however, if sellers can simply adjust property prices downward to compensate buyers for this liability. We present a model of joint and several liability under Superfund that allows us to distinguish four different reasons that this liability may discourage the purchase of brownfields. The previous literature has overlooked the effects that we identify, which all arise because a sale may increase the number of defendants in a suit to recover cleanup costs. Our analysis suggests that the brownfields problem may be more widespread than one might infer from the prior literature. Furthermore, the effects that we identify may distort not only the incentives to sell property subject to Superfund liability but also any decision of any party subject to any joint and several liability if that decision could affect the number of other defendants liable for the same harm.

environmental law and policy, environmental economics, Superfund liability, torts, real estate

Abstract:
Economists recognize that nations can gain from trade through not only the free movement of goods across national boundaries but also the free movement of services, capital, and labor across national boundaries. Despite the presumption that economic theory raises in favor of international labor mobility, the nations of the world maintain restrictions on immigration and show little inclination to liberalize these barriers significantly. Michael Walzer defends immigration restrictions as policies necessary to maintain distinct cultural communities and rejects the alternative of voluntary residential segregation at the local level. I argue that we should instead prefer voluntary segregation at the local level over segregation mandated by the government at the national level. Segregation at the local level allows individuals to enjoy the benefits of living in a community matching their preferences while still enjoying access to labor markets in other communities nearby. The type of segregation that Walzer defends, enforced at the national level through immigration restrictions, cuts workers off from valuable employment opportunities. First, I present a critique of Walzer's claims from an economic perspective. I take the maximization of global economic welfare to be the appropriate objective, then explore whether the value of distinctive cultural communities can justify immigration restrictions. Second, I present a moral critique from a liberal perspective. I argue that even if immigration restrictions satisfy the preferences of incumbent residents for more extensive segregation than voluntary segregation can provide, this effect cannot justify immigration restrictions in a society committed to liberal ideals.

immigration law, moral and political philosophy, economics, race relations

Abstract:
From the perspective of the economic interests of natives, guest-worker programs may be an optimal response to concerns regarding the fiscal impact of unskilled alien workers. Through such programs, natives enjoy the benefits of these workers in the labor market but do not bear the fiscal burden of providing the full set of public benefits that these workers would receive if they had ready access to permanent residence and, ultimately, citizenship. From the perspective of liberal principles of justice, however, the ideal would be access to citizenship, and guest-worker programs are only second-best policies. As long as natives are unwilling to bear the fiscal burdens that more liberal policies would entail, however, access to permanent residence will remain limited. Given these constraints of political feasibility, a liberalized guest-worker policy would represent a worthwhile improvement over the status quo, whether from the perspective of natives, aliens, or cosmopolitan liberalism.

Abstract:
The immigration of relatively unskilled workers poses a fundamental problem for liberals. While from the perspective of the economic welfare of natives, the optimal policy would be to admit these aliens as guest workers, this policy would violate liberal ideals. These ideals would treat these workers as equals, entitled to access to citizenship and to the full set of public benefits provided to citizens. If the welfare of incumbent residents determines admissions policies, however, and we anticipate the fiscal burden that the immigration of the poor would impose, then our welfare criterion would preclude the admission of relatively unskilled workers in the first place. Thus, our commitment to treat these workers as equals once admitted would cut against their admission and make them worse off than they would be if we agreed never to treat them as equals.

A liberal can avoid this "immigration paradox" by adopting a cosmopolitan perspective that extends equal concern to all individuals, including prospective immigrants and other aliens, which suggests liberal immigration policies for relatively unskilled workers. I argue that liberal ideals require a global view of distributive justice and that attempts to defend more limited conceptions of distributive justice that apply only within nations are ultimately question-begging. The problem with policy prescriptions based on global justice is the failure of most citizens to adopt such a cosmopolitan perspective. As long as citizens are reluctant to bear the fiscal burdens that cosmopolitan liberalism would impose, constraints of political feasibility may imply that guest-worker programs are the best policies that cosmopolitan liberals can obtain with respect to many aliens.

Immigration Law, Law and Equality, Moral and Political Philosophy, Politics, Race Relations, Social Science and the Law, Economics

Abstract:
In this paper, I argue that tax and transfer policies are more efficient than immigration restrictions as instruments for raising the after-tax incomes of the least skilled native workers. Policies to protect these native workers from immigrant competition in the labor market do no better at promoting distributive justice and are likely to impose a greater economic burden on natives in the country of immigration than the tax alternative. These immigration restrictions are especially costly given the disproportionate burden that they place on households with working women, which discourages female participation in the labor force. This burden runs contrary to the teachings of optimal tax theory and introduces excessive distortions in the labor market because the supply of female labor is more elastic than the supply of male labor. Thus, the best response to concerns about the effect of immigration on the distribution of income among natives is to increase the progressivity of the tax system.

Immigration Law, Labor Economics, Feminism, Women, Gender Studies, Income Taxation, Law and Equality, Race Relations, Economics, International Trade

Abstract:
When Congress enacted new restrictions on alien access to public benefits in 1996, it also authorized the states to restrict alien access to designated federal benefits and to state benefits. Some commentators have argued that state laws that discriminate against aliens should be subject to strict scrutiny, even if authorized by federal legislation, despite the deferential review applied to federal discrimination against aliens. Based on such a theory, the Court of Appeals of New York in Aliessa v. Novello recently struck down a state law despite the federal authorization for that law in the 1996 welfare legislation. This essay raises some questions regarding the policy rationales commonly advanced in favor of strict scrutiny in this context. In particular, the need for a uniform rule of naturalization, the right of interstate travel, antidiscrimination principles, the interests of aliens, and nondelegation concerns fail to provide convincing reasons to apply strict scrutiny to alienage discrimination authorized by federal law.

Abstract:
Congress may soon restrict joint and several liability for cleanup of contaminated sites under Superfund. We explore whether this change would discourage settlements and is therefore likely to increase the program's already high litigation costs. Recent theoretical research by Kornhauser and Revesz finds that joint and several liability may either encourage or discourage settlement, depending upon the correlation of outcomes at trial across defendants. We extend their two-defendant model to a richer framework with N defendants. This extension allows us to test the theoretical model empirically using data on Superfund litigation. We find that joint and several liability does not discourage settlements and may even encourage them. Our results support the model's predictions about the effects of several variables, such as the degree of correlation in trial outcomes.

Abstract:
We show that, when plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule of litigation cost allocation (under which each litigant bears its own expenses) nor the British rule (under which the losing litigant pays the attorneys' fees of the winning litigant) would induce plaintiffs to make optimal decisions to bring suit. In particular, plaintiffs may bring frivolous suits when litigation costs are sufficiently small relative to the amount at stake, and plaintiffs may not bring some meritorious suits when litigation costs are sufficiently large relative to the amount at stake. We analyze the effect of more general fee-shifting rules that are based not only upon the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial -- that is, the 'margin of victory.' In particular, we explore how and when one can design such a rule to induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. Our analysis suggests some considerations to guide the interpretation of Federal Rule of Civil Procedure 11.

Abstract:
This paper presents a model of cumulative innovation to investigate what factors should influence a court's decision when a patentee alleges that another inventor has infringed the patent with an improved version of the patented product. The model reveals how the optimal patent policy would extend broad protection to those inventions that have very little value (standing alone) relative to the improvements that others may subsequently invent. This paper also examines whether courts should allow a patentee and competing inventors with improved versions of the patented product to enter collusive agreements. The model indicates that such a policy could create incentives for inefficient entry by imitators who "invent around" the original patent.

Abstract:
This paper presents a model of cumulative innovation to investigate what factors should influence a court's decision when a patentee alleges that another inventor has infringed the patent with an improved version of the patented product. The model reveals how the optimal patent policy would extend broad protection to those inventions that have very little value (standing alone) relative to the improvements that others may subsequently invent. This paper also examines whether courts should allow a patentee and competing inventors with improved versions of the patented product to enter collusive agreements. The model indicates that such a policy could create incentives for inefficient entry by imitators who "invent around" the original patent.

Abstract:
This paper shows that, when plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule of litigation cost allocation (under which each litigant bears its own expenses) nor the British rule (under which the losing litigant pays the attorneys' fees of the winning litigant) would induce plaintiffs to make optimal decisions to bring suit. In particular, plaintiffs may bring frivolous suits when litigation costs are sufficiently small relative to the amount at stake, and plaintiffs may not bring some meritorious suits when litigation costs are sufficiently large relative to the amount at stake. This paper analyzes the effect of more general fee-shifting rules that are based not only upon the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial - that is, the "margin of victory." In particular, this paper explores how and when one can design such a rule to induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. The analysis suggests some considerations to guide the interpretation of Federal Rule of Civil Procedure 11.

Abstract:
This paper shows that, when plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule of litigation cost allocation (under which each litigant bears its own expenses) nor the British rule (under which the losing litigant pays the attorneys' fees of the winning litigant) would induce plaintiffs to make optimal decisions to bring suit. In particular, plaintiffs may bring frivolous suits when litigation costs are sufficiently small relative to the amount at stake, and plaintiffs may not bring some meritorious suits when litigation costs are sufficiently large relative to the amount at stake. This paper analyzes the effect of more general fee-shifting rules that are based not only upon the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial -- that is, the "margin of victory." In particular, this paper explores how and when one can design such a rule to induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. The analysis suggests some considerations to guide the interpretation of Federal Rule of Civil Procedure 11.

Abstract:
This paper describes the immigration policy that would maximize the welfare of natives. Trade principles indicate that the United States should eliminate its immigration quotas and other non-tariff protectionist barriers and use immigration tariffs instead.

Abstract:
This paper addresses the role of trade restrictions in support of policies to protect the global environment and proposes a more liberal treatment of these environmental trade measures (ETMs) than that adopted by dispute- settlement panels of the General Agreement on Tariffs and Trade (GATT). The GATT Secretariat has recommended that countries like the United States rely on "carrots" rather than "sticks" to induce the participation of other countries in multilateral agreements. This paper defends the use of "sticks" on the ground that they encourage more restrained exploitation of the environment pending a multilateral agreement. First, "sticks" would discourage countries from harming the environment. Second, "carrots" create perverse incentives. Countries may seek to convince others that they derive large benefits from exploitation by engaging in a great deal of exploitation, so that other countries will offer large "carrots" to induce their restraint. This paper also addresses how GATT should limit the use of trade restrictions to prevent the protectionist abuse of trade measures.

Abstract:
This paper addresses the role of trade restrictions in support of policies to protect the global environment and proposes a more liberal treatment of these environmental trade measures (ETMs) than that adopted by dispute- settlement panels of the General Agreement on Tariffs and Trade (GATT). The GATT Secretariat has recommended that countries like the United States rely on "carrots" rather than "sticks" to induce the participation of other countries in multilateral agreements. This paper defends the use of "sticks" on the ground that they encourage more restrained exploitation of the environment pending a multilateral agreement. First, "sticks" would discourage countries from harming the environment. Second, "carrots" create perverse incentives. Countries may seek to convince others that they derive large benefits from exploitation by engaging in a great deal of exploitation, so that other countries will offer large "carrots" to induce their restraint. This paper also addresses how GATT should limit the use of trade restrictions to prevent the protectionist abuse of trade measures.

Abstract:
Dispute-settlement panels of the General Agreement on Tariffs and Trade (GATT), as well as the GATT Secretariat, have condemned the use of trade restrictions by some countries to induce other countries to protect the global environment. The GATT Secretariat has recommended that countries rely on "carrots" rather than "sticks" to induce the participation of other countries in multilateral environmental agreements. This paper presents a formal model of a signaling game that suggests the type of "carrots only" regime suggested by the GATT Secretariat would create perverse incentives. Under conditions of asymmetric information, countries may seek to convince others that they bear large costs from pollution abatement by engaging in a great deal of pollution, so that other countries will offer larger "carrots" to induce abatement. In both pooling and separating equilibria, "carrots" encourage greater environmental harm pending a multilateral agreement.

Abstract:
Dispute-settlement panels of the General Agreement on Tariffs and Trade (GATT), as well as the GATT Secretariat, have condemned the use of trade restrictions by some countries to induce other countries to protect the global environment. The GATT Secretariat has recommended that countries rely on "carrots" rather than "sticks" to induce the participation of other countries in multilateral environmental agreements. This paper presents a formal model of a signaling game that suggests the type of "carrots only" regime suggested by the GATT Secretariat would create perverse incentives. Under conditions of asymmetric information, countries may seek to convince others that they bear large costs from pollution abatement by engaging in a great deal of pollution, so that other countries will offer larger "carrots" to induce abatement. In both pooling and separating equilibria, "carrots" encourage greater environmental harm pending a multilateral agreement.

Abstract:
This paper takes economic principles commonly applied to international trade and applies them to trade in labor services. This analysis derives the optimal immigration policy for a variety of welfare objectives, including both economic efficiency and distributive justice. The analysis suggests that the maximization of any measure of economic welfare would probably require levels of immigration higher than those allowed by current U.S. policies. First, this paper describes the immigration policy that would maximize the welfare of natives. Trade principles indicate that the United States should eliminate its immigration quotas and other nontariff protectionist barriers and use immigration tariffs instead. A tariff could take the form of an income tax that discriminates between natives and immigrants. The analysis takes account of external effects from immigration through the public sector, such as congestion costs and effects on the public treasury. The optimal tariff not only includes a Pigouvian component to internalize external costs, but also reflects optimal-tax considerations and market power. The optimal tariff is positive for immigrants with low incomes but is likely to be negative for immigrants with sufficiently high incomes. These results suggest that skilled immigration should be permitted (indeed encouraged) without quantitative or other protectionist restrictions and that unskilled immigration should be permitted without quantitative restrictions but subject to less generous fiscal policies than those applied to natives.Second, the paper extends the analysis to include the welfare of immigrants among our objectives. If our measure of social welfare includes distributive concerns, then it may be optimal to provide poor immigrants with access to transfer programs and to use liberal quotas to regulate their immigration. Finally, the paper considers the policies that would maximize global economic welfare, giving equal weight to all persons.