Offshoring, trade and environmental policies : Effects of transboundary pollution

Kawata Keisuke

Ouchida Yasunori

IDEC DP2 Series

This study develops a two-country model, Home and Foreign, with offshoring and environmental spillover. A final good producer in Home can produce (homogeneous) final goods using customized inputs produced by its partner-supplier in Foreign. The intermediate input price is determined by Nash bargaining, presenting a hold-up problem. Additionally, input production causes transboundary pollution. Home and Foreign governments can set trade taxes. Moreover, the Foreign government can set the environmental standard. This model demonstrates that, under no international policy agreement, both the environmental standard and the quantity of the intermediate input are lower than the first-best levels. This ine￠ ciency persists even if both governments conclude an agreement.

Offshoring

Intermediate input trade

Emission spillover

Environmental standard

Incomplete contract

JEL Classification Numbers: F12

JEL Classification Numbers: F13

JEL Classification Numbers: F18

JEL Classification Numbers: L24

JEL Classification Numbers: Q56

Social science [ 300 ]

Pollution. Environmental engineering [ 519 ]

eng

広島大学大学院国際協力研究科