Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?

International Trade from University Library of Munich, Germany

Abstract: If, in international agreements, governments “link'' trade to environmental policy (or other issues with non-pecuniary externalities), will this promote more cooperation in both policies or will cooperation in one policy be strengthened at the expense of the other? We analyze this question in the context of self-enforcing agreements. We show that if the two policies are independent in the government's objective function then linkage -- the ability to use both policies to punish non- compliance in either individual agreement -- promotes cooperation in one policy at the expense of the other (e.g. strengthens environmental standards at the expense of higher tariffs). However, if the linked policies are not independent in the governments' objective function (e.g. a tariff on cars and an environmental tax on oil) and if these policies are strategic complements then linkage promotes more cooperation in both issues (higher environmental standards and lower tariffs) than no-linkage. The policies are strategic complements only if: (i) the production externality has cross-border effects; (ii) the weight on the externality cost is high; (iii) import competing lobbies are not “powerful''.

Keywords: Trade; linkage; environment; labor; cross-border externality, repeated games. (search for similar items in EconPapers)
JEL-codes: F13 F42 H23 H77 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2002-06-26, Revised 2002-07-28
New Economics Papers: this item is included in nep-mic and nep-pbe
Note: Type of Document - Acrobat PDF; prepared on PC; pages: 50; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Chapter: Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes? (2018)
Journal Article: Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpit:0206002

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