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International Trade Rules and Environmental Cooperation under Asymmetric Information

Rodney D. Ludema and Ian Wooton
International Economic Review
Vol. 38, No. 3 (Aug., 1997), pp. 605-625
DOI: 10.2307/2527283
Stable URL: http://www.jstor.org/stable/2527283
Page Count: 21
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
International Trade Rules and Environmental Cooperation under Asymmetric Information
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Abstract

With asymmetric information about local costs relative to international benefits of direct environmental policy, countries will rely too heavily on trade policy in controlling cross-border externalities in negotiated agreements. The unilateral externality policy chosen before negotiations by an exporter provides a signal about its local cost, modifying the information used in negotiations. The greater the exporter's incentive to use an externality tax as a second-best trade instrument, the better the signal. Consequently, exogenous limits on the unilateral use of trade policy in the absence of environmental cooperation can diminish the informational problem and improve the performance of prospective environmental agreements.

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