Environmental Regulation and Trade Openness in the Presence of Private Mitigation
34 Pages Posted: 18 Aug 2008 Last revised: 5 Sep 2010
Date Written: August 31, 2010
Acknowledging the differential ability of individuals to privately mitigate the consequences of pollution is essential for an understanding of demands for regulation of the environment and of trade in dirty goods, and for analysis of the implications of these demands for equilibrium policy choices. In a small open economy with exogenous policy, we first explain how private mitigation results in an unequal distribution of the health consequences of pollution in a manner consistent with epidemiologic studies, and consequently how the benefits and costs of trade in dirty goods interact with choices concerning private mitigation to polarize the interests of citizens concerning environmental stringency. The economy is then embedded in a broader political economy setting, and simulated to investigate the role of private mitigation in the determination of policy choices. We show that when citizens can effectively choose between costly collective and costly private alternatives for pollution control, the same polarization of interests underlies equilibrium policy choices concerning environmental regulation and trade openness in democratic and autocratic regimes.
Keywords: Environmental regulation, Private mitigation, Trade; Dirty Goods, Individual Welfare, Health, Democracy, Representation Theorem
JEL Classification: D7, F18, Q56
Suggested Citation: Suggested Citation