Competitive dominance of emission trading over Pigouvian taxation in a globalized economy
Journal
Economics Letters
Journal Volume
163
Start Page
158
End Page
161
ISSN
0165-1765
Date Issued
2018-02
Author(s)
Seung-Gyu Sim
Abstract
This paper examines the welfare implication of adopting a Pigouvian taxation scheme or emission trading scheme. In a globalized economy with international trade and cross-border pollution, we show that adopting the latter is the strict dominant strategy of each country, and global welfare is maximized when all countries adopt the latter, because emission trading incentivizes the other country to tighten its environmental regulation without concern for excessive shrinkage of domestic production and aggravation of cross-border pollution.
Subjects
Cross-border pollution
Emission trading scheme
International trade
Pigouvian taxation
Publisher
Elsevier BV
Type
journal article