AJAE Appendix: Grading, Minimum Quality Standards, and the Labeling of Genetically Modified Products

The material contained herein is supplementary to the article named in the title and published in the American Journal of Agricultural Economics, Volume 89, Number 3, August 2007.Marketing,

Strategic environmental policy under free trade with transboundary pollution

We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in a race to the bottom in environmental taxes, which makes both countries worse. This is not due to the terms of trade motive, but rather the incentive, in a strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. Under free trade, internationally nontradable quotas result in the lowest pollution level and strictly welfare- dominate taxes. The ordering of internationally tradable quotas and pollution taxes depends, among other things, on the degree of international pollution spilloversEnvironmental Economics and Policy,

Grading, Minimum Quality Standards, and the Labeling of Genetically Modified Products

We relate the labeling of genetically modified (GM) products to the theory of grading and minimum quality standards. The model represents three stages in the supply chain, assumes a vertical product differentiation framework, allows for the accidental commingling of non-GM products, and treats regulation as a purity threshold for non-GM products. We find that a non-GM purity level that is too strict leads to the disappearance of the non-GM product, and that some quality standard benefits farmers. Indeed, the standard that is optimal from the perspective of producers is stricter than what is optimal for consumers and for societal welfare.

Strategic Environmental Policy Under Free Trade with Transboundary Pollution

We analyze the effects of free trade on environmental policies in a strategic setting with transboundary pollution. Trade liberalization can result in a race to the bottom in environmental outcomes, making both countries worse off. With command and control policies (quotas), there is no race to the bottom. However, with internationally tradable permits, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. In our model carbon leakage alone, and not a terms of trade motive, drives countries to relax domestic environmental policy. Quantity-based tools strictly welfare-dominate price-based tools under free trade.free trade; transboundary pollution; environmental policy; carbon leakage; race to the bottom

Strategic Environmental Policy Under Free Trade with Transboundary Pollution

�We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in�a race to the bottom in environmental taxes, which makes both countries worse off.�This is not due to the terms of trade motive, but rather the incentive, in a�strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign�emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global�public bad, there is a race to the bottom in environmental policy. Under free trade,�internationally nontradable quotas result in the lowest pollution level and strictly�welfare-dominate taxes. The ordering of internationally tradable quotas and pollution�taxes depends, among other things, on the degree of international pollution spillovers.Free trade; Transboundary pollution; Strategic environmental policy; Carbon leakage; Race to the bottom.

Optimal Trade Policies for a Developing Country Under Uncertainty

This paper investigates optimal trade policies for a developing small open economy which faces international price uncertainty. Trade taxes are used to finance provision of a public good, which enters the utility function of consumers. If demands for private goods are independent of the public good, the optimal composite tariff dominates the optimal quota. If the optimal state-contingent tariff increases with the foreign price, the optimal specific tariff also dominates the optimal quota, regardless of risk aversion. However, the ranking of the optimal specific tariff and the optimal quota generally depends on risk attitudes as well as ordinal preferences.International Relations/Trade,

Factor-Market Distortions and Dynamic Optimal Intervention: Reply

Edward Ray, in his comment on my 1976 paper, analyzes a slightly different model than the one I presented, and thus reaches different conclusions. His principal conclusions are that: (i) given wage rigidities, a wage subsidy to producers is needed, and this subsidy is equivalent to the optimal static subsidy that ensures full employment in each sector; and (ii) given the forced equilization of wages across sectors, a subsidy to workers is needed to encourage labor transfers between sectors. Thus, Ray finds that full employment is always desirable, whereas I find that some unemployment is (usually) present along the optimum path

International Trade, Factor-Market Distortions, and the Optimal Dynamic Subsidy: Reply

James Cassing and Jack Ochs\u27 comment is, I believe, a very interesting extension of the analysis of my paper. Their two basic results are: (i) that congestion will occur in the search for jobs; and (ii) that given costly labor mobility, private decisions regarding voluntary quits will yield a socially optimal adjustment path if individuals have perfect foresight and if there is no congestion (externality) in the search process. Thus, they argue that even if factor prices are not rigid, the presence of congestion in the search process implies private decisions will not be socially optimal, and therefore that a subsidy will be needed to support the optimal plan

Unit Vs. Ad Valorem Taxes in Multi-Product Cournot Oligopoly

The welfare dominance of ad valorem taxes over unit taxes in a single-market Cournot oligopoly is well-known. This article extends the analysis to multi-market oligopoly. Provided all ad valorem taxes are positive, unit costs are constant, firms are active in all considered markets, and a representative consumer has convex preferences, it is shown that ad valorem taxes dominate in multi-product equilibrium. We discuss the role of unit cost covariances across multi-product firms in determining the extent of cost efficiencies arising under ad valorem taxation. The issue of merger under oligopoly is also considered. Conditions are identified under which a merger increases the sum of consumer and producer surpluses while also increasing the revenue yield from a set of unit taxes. If not all firms are active in all considered markets, then it is also shown that additional conditions are required to ensure the dominance of ad valorem taxes. In multi-input Cournot oligopsony, however, unit taxation welfare dominates. This is because ad valorem taxes on inputs reduce demand elasticities, amplifying market power distortions.ad valorem tax; imperfect competition; oligopoly merger; quantity-setting game; specific tax; tax efficiency; tax revenue