The Conservation Effects of Trade with Imperfect Competition and Biased Policymakers
Qianqian Shao | Thorsten Janus | Maarten J. Punt | Justus Wesseler
In this paper, we study the effects of international trade on forest conservation and welfare in a two-country model with industry-biased policymakers and Cournot-competing firms. We find that opening up to trade increases the harvest taxes that the industry-biased governments impose compared to the autarky taxes. The tax increase is large enough to decrease the production levels, which leads to higher conservation levels. In addition, the numerical simulation predicts that increasing the industry-bias monotonically increases (i) the positive tax effect, (ii) the positive conservation effect, and (iii) the welfare gains from trade. The intuition behind the results is that industry-biased governments already degrade the environment under autarky, so even a highly-distorted trade outcome can be welfare-improving. We conclude that, even if industry bias decreases conservation, it does not have to increase the environmental costs of trade.
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