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Tariffs and the adoption of clean technology under asymmetric information

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This paper examines the effect of a tariff on the decision of a foreign monopolist to adopt ‘clean’ technology, which reduces the flow of a negative cross-border externality. The clean technology increases the marginal cost of production relative to the dirty technology, but only the firm knows the extent of the increase. Under complete information, despite its protectionist motivation, the importing country's optimal tariff induces the firm to adopt the clean technology if and only if it is globally efficient to do so. Under incomplete information, this efficiency property is disrupted, and the firm biases its choice in favour of dirty technology. JEL classification: F13, F18
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Keywords: F13; F18

Document Type: Research Article

Affiliations: 1: School of Foreign Service, Georgetown University 2: Department of Advanced Social and International Studies, University of Tokyo

Publication date: 2007-11-01

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