A Study on Optimal Trade and Environmental Policies in The International Oligopoly with Overseas Production and Pollution

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Establishing a simple model of a international oligopoly where two big firms produce goods as well as pollution in the home and foreign courtiers, this study has examined the optimal environmental pollution taxes adopted by the home government. The main results are summarized as followings:1. Even if the foreign government would not adopt any environmental taxes, the home government can vary pollution emission in the world through changing only its own environmental pollution taxes.2. The optimal environmental pollution taxes imposed by the home government are not always positive, depending on market demand functions, cost functions, environmental damage functions, spill-over coefficients of environmental pollution and so on. Therefore, it is not appropriate, from a standpoint of optimal resource allocation, that the home government always sets its environmental pollution taxes positive.3. When the foreign government is too indifferent to environmental pollution, a rise of the environmental pollution tax in the home country has a possibility to generate a pollution export from the home country to the foreign country as well as to increase total pollution emission in the world.4. Since the environmental pollution taxes imposed by the home government have the great effects on the economic welfare of the foreign country which might be negative, the home government should consider such the effects when it adopts the environmental pollution taxes.5. A fiscal expense in which the home government adopts the environmental pollution taxes that maximizes the joint economic welfare of the home and foreign countries seems to be almost the same as a fiscal expense in which the home government adopts the environmental pollution taxes that maximizes merely the economic welfare of the home country. Hence, there exists a big feasibility that the home government adopts the former environmental pollution taxes.