Political Institutions and the Design of Environmental Policy in a Federal System with Asymmetric Information
Fondazione Eni Enrico Mattei Working Paper No. 8.98
31 Pages Posted: 17 Sep 1998
Date Written: January 1998
Abstract
Policy debates on trade and the environment frequently refer to a need for countries linked by trade to co-ordinate, or even harmonise, their purely domestic environmental policies. Underlying this argument is a concern that national governments will not fully internalise environmental externalities. Conventional trade models suggest this concern is unwarranted and harmonisation may be damaging. In this paper I consider two possible bases for this concern - strategic trade and political economy considerations - and assess the implications for the design of policy and political institutions to achieve co-ordination. A model which links these two factors suggests a possible rationale for harmonisation of environmental policies, even when countries differ significantly with respect to environmental damage costs.
JEL Classification: F1, H7, Q2
Suggested Citation: Suggested Citation