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Environmental policy versus industrial policy in a small open economy

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Resumo:The absence of integrated industrial and environmental policies in small open economies for which pollution harmful effects are relevant, might lead to both inefficient and ineffective equilibrium solutions.Let's assume that, in a small economy, we have a concentrated industry whose firms produce negative externalities as a result of pollutant emissions. In this situation, the environmental policy agency and the department responsible for the industrial policy would decide on two opposite strategies: while the former would forget the market structure, the latter would be unaware of the existence of externalities. According to industrial economists, the main concern would be the competition and/or anti-trust policies to minimize distortions on resource allocation resulting from the existence of market power. The practical consequences of these policies are the reduction on the price of output and the increase on the level of production.As for environmental economists, they would propose the internalization of costs by firms (following a Pigouvian strategy) which would imply a reduction both in output and in the emissions of residuals. In section 2 it is showed that the separate_ implementation of each of these policies (industrial policy or environmental policy) can induce perverse effects, that is, it can lead to a negative variation on total surplus. The relevance of this fact is due to the following factors: the most concentrated industries are also those which generate more pollution; and industrial and environmental policies are decided by two separate public agencies. In section 3, it is attempted to solve the indetermination underlying the abovementioned results. In fact, it is showed that, in a small economy facing an increasing international integration, environmental policy can be efficient, while industrial policy is neither efficient nor effective. Finally, in section 4 the impact of environmental and industrial policies on the market structure is studied.
Autores principais:Martins, Manuel Victor
Outros Autores:Santos, Vitor M.
Assunto:Small Open Economy Pollution Industrial Policy Environmental Policy Mathematical Models
Ano:1990
País:Portugal
Tipo de documento:working paper
Tipo de acesso:acesso aberto
Instituição associada:Universidade de Lisboa
Idioma:inglês
Origem:Repositório da Universidade de Lisboa

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