Environmental Dumping and International Unionized Oligopolies

Abstract

This paper studies whether environmental dumping is a robust strategic environmental policy toward international unionized oligopolies. We introduce trade unions to Barrett (1994) model and show that: (i) When firms compete as Cournot competitors, governments engage in environmental dumping policies; and the extent to which optimal environmental taxes deviate from Pigouvian taxes is greater than in the case where there do not exist trade unions. (ii) When firms compete as Bertrand competitors, optimal environmental policies are determined by the interaction between trade unions’ bargaining strength and the degree of product differentiation. If trade unions’ bargaining strength is sufficient; or given trade unions’ bargaining strength, if the degree of product differentiation is sufficient, governments engage in environmental dumping policies. (iii) These imply that environmental dumping could be a robust strategic environmental policy toward international unionized oligopolies.