Francesca Sanna-Randaccio paper - The Business School

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production and thus on the global level of emissions. 30 The job leakage, which is not explicitly considered in the welfare function, is indirectly captured by the change in the carbon tax revenue, as both phenomena depend on the fall in the domestic production level. 6.1 The NR equilibrium outcome The unilateral mitigation measure, when firm 1 location strategy does not change, leads to a fall in world production and thus emissions, although part of the contraction in domestic production is compensated by a rise in foreign output. In fact we have: ˆ NR ~ t I t II t I t II ( Q W QW ) 0 (20) 3bI 3bII In this scenario, the impact of the unilateral policy on consumers’ aggregate welfare is positive. Consumers’ aggregate welfare (see Cole et al. 2009, p. 1242) is given by the sum of consumers’ surplus and pollution tax revenues, less the damage from pollution. Here we assume that the revenue of the pollution tax is 100% returned to the taxpayers. 31 Although consumers’ surplus narrowly defined falls, for sufficiently low values of t II , the carbon tax revenue increase is greater than the fall in consumers’ surplus, since under rather general conditions (see Appendix C): ( CSˆ NR I ~ ˆ NR ~ CS I ) ( TI TI ) t I t II 2AI 11t I 3t II 8s 6( AII 6 3bI 2t 2 ) I t II s 0 3bII Furthermore, pollution damage decreases since (see Appendix C): ( Dˆ NR I ~ D ) I 1 1 4 3 2 4 3 2 I AI tI tII s AII tI tII s (22) ( tI tII )( ) 0 6 bI bII 3bI 3bII The local firm’s profits instead diminish in both markets, as NR ~ 4 ( A ) ( 2 ) I t I s AII t I s ˆ 1 ) ( t I t II ) 0 (23) 9 bI bII ( 1 The previous results allow us to state that: (21) 18
Proposition VI The introduction of t I tII , when firm 1 location strategy does not change, leads to a fall in world emissions, a rise in consumers’ aggregate welfare in country I, and a decrease in the local firm’s global profits. As to the overall effect on country I welfare, 32 if we consider only one source of market asymmetry ( aI aII while bI bII b ), we obtain: ˆ NR ~ ( W I W I ) 0 iff 2 ( 4 4A 2t 6t 4s) b( 6A 2A 7t 9t 4s) I AI II I II I II I II where I represents the society’s assessment of the disutility of pollution. As the LHS term in parenthesis in Eq. (24) is smaller than the RHS term in parenthesis, 2 I b is a necessary but not sufficient condition for a net positive impact on welfare. If 0 , the overall impact is negative, that is the negative effect on firms prevails on the positive effect on consumers. To summarize, an unilateral climate policy, when it does not induce a change in location strategy, may rise the welfare of the country implementing it by leading to a fall in global emissions and rising consumers aggregate welfare, although the local firm’s profits decrease. This is the case also in the absence of technological innovation (not contemplated in our model) which would make condition (24) less restrictive. A positive net impact on welfare of the unilateral mitigation policy requires that a high importance is assigned by the national community to the environmental damage (i.e. that the value of I is high). 6.2 The PR equilibrium outcome If unilateral measures lead to partial relocation of domestic production, global emissions may rise as the fall in domestic production may be more than compensated by foreign production expansion. This will depend on the degree of market asymmetry, since: PR ~ t I t II s ( Qˆ W QW ) . (25) 3bI 3bII I (24) 19
Page 1 and 2: The impact of unilateral climate po
Page 3 and 4: A related, although less policy-ori
Page 5 and 6: Furthermore, the net effect on welf
Page 7 and 8: will undertake a market-oriented FD
Page 9 and 10: ( a c 2s 2t t ) ( a c t ) G
Page 11 and 12: TR PR 4 ˆ 1 ˆ 1 s( t I t
Page 13 and 14: the influence of transport costs, w
Page 15 and 16: 4.4 Market size and plant costs asy
Page 17: ( s ( t I t II ) ), all three out
Page 21 and 22: market asymmetry is limited, an uni
Page 23 and 24: Two sets of provisions to moderate
Page 25 and 26: identifying vulnerable sectors are
Page 27 and 28: coefficients vary across regions. T
Page 29 and 30: Appendix B Short-term boundary cond
Page 31 and 32: References Abe K, Zhao L (2005) End
Page 33 and 34: Mani M, Wheeler D (1997). In search
Page 35: Table 1 The impact of a unilateral
Page 38 and 39: 2005). As suggested by Mulatu, et a
Page 40: 38 Out of the nearly 500 six-digit

Francesca Sanna-Randaccio paper - The Business School

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