Trade in trash: A political economy approach

We study how the opportunity to trade in trash might influence the equilibrium outcome when the tax on the externality is determined by a political economy process. In our model, individuals have heterogeneous preferences for environmental quality, and there is a wastage of real resources when funds...

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Bibliographic Details
Published in:European Journal of Political Economy 2021-03, Vol.67, p.101982, Article 101982
Main Authors: Cassing, James H., Long, Ngo Van
Format: Article
Language:English
Subjects:
Environmental lobby
Environmentalists
Externalities
Externality
Interest groups
Political economy
Politicians
Taxation
Trade and environment
Trade in trash
Wastage
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Summary:We study how the opportunity to trade in trash might influence the equilibrium outcome when the tax on the externality is determined by a political economy process. In our model, individuals have heterogeneous preferences for environmental quality, and there is a wastage of real resources when funds are transferred from the pressure groups to the politicians. When hard-core environmentalists and capitalists are organized interest groups while moderate environmentalists are not organized, we find that the politically chosen tax on the externality is below the optimal Pigouvian level. The opportunity to export waste in unlimited quantities, but at a price, is not the environmentalists’ panacea and does not eliminate political social tension and suboptimal results. •Tax on the externality is determined by a political economy process.•Individuals have heterogeneous preferences.•Trade in trash does not eliminate social tension and sub-optimal outcomes.
ISSN:0176-2680
1873-5703
DOI:10.1016/j.ejpoleco.2020.101982