TRADE, INDUSTRIAL, AND ENVIRONMENTAL POLICIES IN OLIGOPOLISTIC MODELS: PIECEMEAL POLICY REFORMS AND THE CHOICE OF INSTRUMENTS

Author

Aroni Kabita Porna, Southern Illinois University CarbondaleFollow

Date of Award

12-1-2022

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Lahiri, Sajal

Abstract

We consider a partial equilibrium Cournot-oligopolistic model in which the domestic market of two differentiated goods is served by a number of identical domestic firms and exports by foreign firms. In chapter 1, we characterize the optimality conditions with an emission standard and lump-sum tax to target the distortions, and we find the optimal instrument that targets the emission or pollution most efficiently. Through our study we find out that the use of right mix of environmental and non-environmental policy instruments could decrease emissions and increase welfare of the economy at the same time, even when there is foreign competition. Next, we introduce cross-border pollution and model pollution content tariff imposed on the imports from foreign country as one of the instruments for the domestic country in chapter 2. We first characterize the optimal values of the policy instruments and then design multilateral piecemeal policy reforms that unambiguously improve the welfare of the countries involved and reduce emissions. In chapter 3, we compare the effectiveness of two policy instruments in reducing pollution: subsidies tied to R&D and tariffs as trade barriers. Our paper shows that multilateral piecemeal policy reforms could be designed where 'carrots' in the form of tied subsidies to R&D would prove to be more beneficial than 'sticks' in the form of tariffs, in reducing the pollution and increasing the welfare for the two countries.