Strategic Environmental Policy When Waste Products Are
Tradeable
James Cassing, University of Pittsburgh,
and Thomas Kuhn, Chemnitz University of Technology
A particularly contentious environmental issue between nations, and between regions within nations, is the policy attitude toward the disposal of waste, such as in landfills, and other potentially harmful industrial by-products like spent nuclear fuel. An international and interregional policy issue arises because many of these unwanted products are themselves tradeable commodities.
In this paper we explore the implications of the possibility of "trade in trash" on optimal environmental policy and on the ramifications of a stronger or weaker environmental lobby across regions or nations. Hence, we have constructed a multiple stage game composed of a market stage and a policy stage. Waste is generated as a by-product of production and, since we assume an international market for waste products to exist, might be exported to some less developed countries to get rid of any damages linked to waste treatment and disposal. Waste markets are imperfect, the assumption made is that waste exporters - usually big industries like the chemical and nuclear industry or central processors for plastics wastes and such kind- do have power in the waste market while importers -small firms in less developed countries- are pure price takers. On the policy level countries are large to be able to affect the terms of trade for waste products. Thus, naturally, governments get involved into Nash tax competition where politicians are taken to maximise a political support function reflecting lobbying activities of environmentalists as well as industrialists.
In general, we find that environmentalists do not necessarily succeed in pushing stricter environmental policies nor do industrialists in pushing weaker due to the fact that lobbying may be offset by the terms of trade effect. As it happens, even stronger environmental sentiment in all nations need not lead to increased protection of the environment.