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Carbon Tariff vs. Emission Cap of North–South Countries in Response to Manufacturer’s Production

1
Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China
2
College of Management and Economics, Tianjin University, Tianjin 300072, China
3
School of Economics and Management, Hebei University of Technology, Tianjin 300401, China
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(4), 1443; https://doi.org/10.3390/su12041443 (registering DOI)
Received: 12 January 2020 / Revised: 10 February 2020 / Accepted: 11 February 2020 / Published: 15 February 2020
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
Economy prosperity has concurrently caused severe emission damages worldwide, which calls for strong abatement efforts from both nations and manufacturers. In this paper, we establish a two-stage game to investigate the policy selections of a foreign developed country (North) and a domestic developing country (South), and the response of a Southern manufacturer. The welfare-maximizing governments in the two countries participate in an announcement game of environmental policies where the South decides on whether or not to enforce an emission cap and the North chooses either a carbon tariff or no policy, after which the profit-seeking manufacturer reacts to make production strategies and distribute differentiated products to the two countries. Our analysis shows that under an emission cap, the manufacturer shrinks product quantities in both markets, cuts emissions, and suffers profit losses. A carbon tariff has similar impacts on the manufacturer except for unaffected domestic sales. In addition, equilibrium policy selections for the two governments depend on the degree of emission damage in the South: A moderate level of damage generates an equilibrium in the scenario of the unilateral tariff policy where the Northern welfare peaks and the Southern well-being is not the worst; a severe damage leads to a prisoner’s dilemma, since the two governments would arrive at an equilibrium in the bilateral-policy scenario, but it is dominated by a no-policy scheme. What is more, we find that a negotiation between the two governments is able to help them out of the dilemma and achieve a Pareto-improving outcome. View Full-Text
Keywords: carbon tariff; emission cap; North–South framework; policy selection; game theory carbon tariff; emission cap; North–South framework; policy selection; game theory
MDPI and ACS Style

Dai, R.; Zhang, J.; Liu, G. Carbon Tariff vs. Emission Cap of North–South Countries in Response to Manufacturer’s Production. Sustainability 2020, 12, 1443.

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