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Is Corporate Environmentalism Good for Domestic Welfare?
Author(s) -
Jinji Naoto
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12078
Subject(s) - subsidy , welfare , profit (economics) , economics , environmentalism , production (economics) , environmentally friendly , business , public economics , market economy , international economics , international trade , microeconomics , ecology , law , politics , political science , biology
Many private firms voluntarily care about the environment and declare that their products and production processes are environmentally friendly. This paper shows that corporate environmentalism may reduce the effectiveness of government policies. A simple third‐market trade model with strategic environmental and trade policy is employed, in which an environmentally conscious domestic firm competes with a profit‐maximizing foreign firm. It is shown that even if emission taxes and export subsidies are both available, corporate environmentalism may reduce domestic welfare when pollution is transboundary. In the realistic situation where export subsidies are prohibited, welfare may fall even if pollution is local.