Environmental regulation and trade openness in the presence of private mitigation

Abstract

Acknowledging the differential ability of individuals to privately mitigate the consequences of domestic pollution for their health is essential for an understanding of their demands for regulation of the environment and of trade in dirty goods, and for analysis of the implications of these demands for equilibrium policy choices. In a small open economy with exogenous policy, we first explain how private mitigation at a cost results in an unequal distribution of the health consequences of pollution in a manner consistent with epidemiologic studies, and consequently how the benefits and costs of trade in dirty goods interact with choices concerning private mitigation to further polarize the interests of citizens concerning environmental stringency. The economy is then embedded in a broader political economy setting, and simulated to investigate the role of private mitigation in shaping political equilibria. We show that when citizens can choose between mitigating the health consequences of domestic pollution privately and reducing pollution through public policy, the same polarization of interests underlies equilibrium policy choices in both democratic and autocratic regimes.

Self-protection investment exacerbates air pollution exposure inequality in urban China

“…Recent research has studied the consequences of inequality for mitigating pollution exposure. Hotte and Winer (2012) Each of these theoretical studies is relevant for our work. In our study, we adopt a partial equilibrium approach.…”

Distance to hazard: an environmental policy with income heterogeneity

“…This analysis shows that a reduction in the median voter's income leads to a higher equilibrium tax rate. While Hotte and Winer (2012) introduced private mitigation, this study explores spatial aspects to address the issue. The analysis focuses on a case in which averting behavior does not effectively improve the problem and, hence, a possible solution is to reside away from the point-specific hazardous site.…”

“…McConnell (1997) also indicated that the collective demand for environmental improvements is less responsive to income because the propensity for private mitigation, including residential choice, increases with income. Hotte and Winer (2012) built a theoretical model by introducing private mitigation. According to their model, the rich may spend more money on their own protection from pollution and do not necessarily require governmental regulation; hence, the demand for a more stringent environmental policy decreases as income levels rise.…”

Trade, environment, and income inequality: An optimal taxation approach

“…However, it is straightforward to extend the model to the case where workers are not equally vulnerable to the externality (see Footnote 16). See also Hotte and Winer () for a model where individuals are not equally vulnerable to pollution and can privately mitigate its impact.…”