Abstract
In this Heckscher-Ohlin-Samuelson model, production of a pollutive good damages production of another good within the same country. Unilateral and bilateral shifts from laissez faire to Pigouvian policy are numerically simulated for cases of low emissions and a high volume of trade, high emissions and a high volume of trade, and finally, high emissions and a low volume of trade. A country can be worse off when it becomes Pigouvian and it can be worse off when its trading partner becomes Pigouvian. Nevertheless, a simple game theory version of the model suggests a “race to the top”, in which all countries become Pigouvian.
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Kohn, R.E. Environmental Protection by One or Both Trading Partners in a Heckscher-Ohlin-Samuelson Model. Open Economies Review 9, 327–342 (1998). https://doi.org/10.1023/A:1008313414694
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DOI: https://doi.org/10.1023/A:1008313414694