Discussion PaperNo. 0046

Adelaide University SA 5005 AUSTRALIA

ISSN 1444-4534

Trade and the Political Economy ofRenewable Resource Management

Richard Damania

November 2000

CENTRE FOR INTERNATIONAL ECONOMIC STUDIES

The Centre was established in 1989 by the Economics Department of the Adelaide Universityto strengthen teaching and research in the field of international economics and closely relateddisciplines. Its specific objectives are:

• to promote individual and group research by scholars within and outside the AdelaideUniversity

• to strengthen undergraduate and post-graduate education in this field

• to provide shorter training programs in Australia and elsewhere

• to conduct seminars, workshops and conferences for academics and for the widercommunity

• to publish and promote research results

• to provide specialised consulting services

• to improve public understanding of international economic issues, especially amongpolicy makers and shapers

Both theoretical and empirical, policy-oriented studies are emphasised, with a particular focuson developments within, or of relevance to, the Asia-Pacific region. The Centre’s Director isProfessor Kym Anderson (Email kym.anderson@adelaide.edu.au) and Deputy Director, DrRandy Stringer (Email randy.stringer@adelaide.edu.au)

Further details and a list of publications are available from:

Executive AssistantCIESSchool of EconomicsAdelaide UniversitySA 5005 AUSTRALIATelephone: (+61 8) 8303 5672Facsimile: (+61 8) 8223 1460Email: cies@adelaide.edu.au

Most publications can be downloaded from our Home page: http://www.adelaide.edu.au/cies/

CIES DISCUSSION PAPER 0046

Trade and the Political Economy of

Renewable Resource Management

Richard Damania

School of Economics, University of Adelaide,Adelaide, South Australia 5005, Australia.

richard.damania@adelaide.edu.au

November 2000

________________________________________________________________________

Trade and the Political Economy ofRenewable Resource Management

R. Damania

ABSTRACTA growing body of literature suggests that political factors are one of the major causesof environmental damage in developing countries endowed with a relative abundanceof renewable resources. This has prompted calls for the use of trade sanctions toencourage sustainable resource management practices in these countries. This paperdevelops a model to assess the interaction between political lobbying, trade and theincentives to extract a renewable resource. It is demonstrated that in a politicalequilibrium trade sanctions may have effects that have not been previously identifiedin the literature. It is shown that if the government is predisposed to the demands ofspecial interest lobby groups, then trade sanctions may fail to induce better resourcemanagement practices. There are circumstances where sanctions lead to greaterharvesting of the renewable resource and worsen environmental outcomes.

JEL Codes: Q23, Q28, D78, F19.Keywords: Trade Sanctions, Environment, Renewable Resources, Political Economy.

Correspondence: Richard Damania, School of Economics, University of Adelaide,Adelaide, South Australia 5005, Australia. Email: richard.damania@adelaide.edu.au.

2

I IntroductionConcerns over the management of renewable resources have intensified in

recent years. Perhaps the most widely publicized example is the loss of tropical

rainforests, which have been the focus of international negotiations since the Rio

Earth Summit in 1992. Similar problems have emerged in other contexts too, such as

the over-exploitation of fish stocks and wildlife1.

Recent proposals to lower tariffs on renewable resources has focused

attention, yet again, on the link between trade and renewable resource degradation. 2

Environmental groups fear, among other things, that trade in scarce natural resources

has political repercussions that are often ignored by economists. Specifically, it is

argued that trade in scarce renewable resources rewards and condones the

unsustainable harvesting policies in regimes which are often unrepresentative and

undemocratic.3 On the other hand, free traders argue that trade in scarce resources

confers a value upon these commodities and thus creates incentives for better

management (see, e.g., Anderson and Blackhurst (1992)). The growing empirical

literature on the impact of trade on deforestation is ambiguous and has not resolved

the debate at this stage.4 Theoretical predictions are also ambiguous, in a second best

equilibrium, trade may lower welfare.5

A recent and growing body of literature suggests that political factors are one

of the major causes of environmental damage in countries endowed with a relative

1 Common examples of wild animals threatened with extinction through over-harvesting includeelephants (who are harvested for ivory), rhinoceros (who are sought for their horns) and tigers (whosebones and organs are demanded for their presumed therapeutic properties) (TRAFFIC Network Report(1997, 1998)).2 For example, chapters 44, 47,48, 49 of the Harmonized Tariff Schedule proposes the eventualelimination of tariffs on forest products.3 The Economist, October 9, 1999.4 See, e.g., Palo et al (1987), Burgess (1993), Barbier et al (1994).5 We survey the theoretical literature in the following section.

3

abundance of renewable resources. For instance, in a survey of environmental

policies in ten developing countries Desai (1998) asserts that:

"….political elites use their power to.. exploite their countries' vast natural

resources in partnership with domestic and international business, with no

regard to environmental degradation." (p 15)

This conclusion is reinforced in numerous other case studies. According to Broad

(1998), timber harvesting licenses in the Philippines were granted to large firms with

close links to military and government officials. Moreover, the funds generated from

timber concessions have been used to finance electoral campaigns. Similar problems

are identified in Indonesia, where logging concessions have been awarded to a small

group of conglomerates with close links to the ruling political party (Hafner (1998)).

Other examples include logging in the tropical hardwood forests of Cambodia,

Thailand, India and Malaysia with concessions being granted to politically well

connected firms.6 What these and other surveys reveal is that declining stocks of

natural forests have done little to slow the pace of harvesting (Stringer (1994)).

Moreover, lobbying and political influence are critical in determining who obtains a

timber license and how much timber is extracted.

The existing literature has failed to examine the interaction between political

factors and the incentives to extract renewable resources. This paper represents a first

step in this direction. We take explicit account of environmentalists' concerns about

the political influence that industry lobby groups wield. We then investigate whether

trade strengthens or weakens the influence of lobby groups on the resource

management decisions of a self interested government.

6 Rainforest News Spring, 1999.

4

This paper develop a political economy model of renewable resource

harvesting drawing on Grossman and Helpman's (1994) common agency analysis.

We extend the static version of the model developed by Fredriksson (1997, 1999), to

the case of a renewable resource. Accordingly, it is assumed that a self-interested

government cares not only about aggregate welfare, but also political contributions

received from lobby groups. Political donations influence the government’s decisions

because of their many uses such as consolidating power, funding election campaigns

and deterring rivals. The weight given to political donations in the government's

objective functions may be interpreted as a measure of corruption. It is assumed that

the incumbent government determines the quantity of a renewable resource that is to

be harvested by issuing a license which defines the maximum allowable harvest. An

industry group lobbies the government for greater access to the resource by offering

political contributions. The government chooses the harvest to maximize its own

welfare.

Since the analysis focuses upon the effects of lobbying by resource extractors,

the role of an opposing environmental lobby group is suppressed. As noted by Desai

(op cit) this seems reasonable for developing countries where environmental

movements are often centered in poor rural communities, which have little influence

on policy decisions. 7

7 Alternatively, the neglect of an environmental lobby group may be justified by assuming that thedamage from harvesting is so widely dispersed that it does not induce the affected individuals to form alobby group. In the parlance of Baron (1994) this represents a particularist policy, where the benefitsof harvesting are concentrated, but the environmental costs are so thinly spread that they do not providesufficient incentive for individuals to organize a lobby group, or make political donations. Moregenerally, this assumption would hold if the external costs of harvesting are non-pecuniary and thinlyspread over those who either lack funds or are credit constrained (e.g. the poor), while the benefits ofharvesting are pecuniary and concentrated. It is of further interest to note that in developed countriestoo environmental lobby groups seldom contribute funds directly to either governments or politicalparties. In a number of countries such as the USA, Australia, New Zealand and the UK environmentalgroups have received (modest) funds from the government (Reynolds (1998)).

5

Within this framework we analyze the impact of trade sanctions, on resource

stocks under two stark scenarios. First, we consider the case where property rights are

well defined and entry into the industry is restricted so that the firm has an incentive

to maximise long term profits, taking account of the impact of current harvests on its

future payoffs. In the second case, it is assumed that future property rights are not

adequately defined, so that the firm myopically maximizes short term profits. We

compare the impact of trade sanctions in these two regimes to determine the role of

property rights in the political equilibrium.

It is demonstrated that under both property rights regimes, trade sanctions may

lead to lower stocks of the renewable resource in equilibrium. Intuitively, this reflects

the fact that in a political equilibrium, the contributions of the lobby group mirror the

profits that are obtained from a given harvest. When sanctions are imposed, the

profits from harvesting decline and political contributions fall. A government that

values political donations sufficiently will adopt policies to mitigate the decline in

profits and contributions. It does this by increasing the harvest rate. Thus, resource

stocks decline in response to trade sanctions. These results suggest that the effect of

sanctions may be hard to predict since the impact depends upon the parameters of the

problem and institutional arrangements. Caution may therefore need to be exercised

in using trade interventions as a resource management tool.

The analysis is based on the following sequence of events. In the political

equilibrium, the firm chooses its political contribution and the government sets the

quota which defines the maximum allowable harvest. Given knowledge of these

parameters the firm then decides its harvest. The model is solved by backward

induction.

6

The remainder of this paper is organised as follows. Section II briefly reviews

the rapidly growing literature on trade and the environment, while Section III outlines

the main structure of the model. Sections IV and V derive the equilibria under long

and short run profit maximization by the firm. Section VI provides a simple

numerical example of the equilibrium, while Section VII concludes the paper.

II Related LiteratureThere is a substantial body of literature that examines the interaction between

trade and the environment. These studies can be divided into three broad categories.

First, there are models which examine the process of trade and the political economy

of environmental policy formation, in the presence of a static externality. In contrast,

a distinct body of work investigates the effects of trade on stocks of a renewable

resource. Finally, models of international trade have been used to assess the welfare

consequences of trade with either an open access resource, or an externality. In this

Section we survey a subset of models from each of these categories.

The literature on the interaction between trade and the political economy of

environmental policy formation while relatively modest in size, examines a variety of

issues. For example, in an extension of the Grossman-Helpman common agency

model, Fredriksson (1999) finds that trade liberalization reduces the incentives to

lobby for environmental policies if a country has a comparative disadvantage in the

polluting good. In the political competition framework, Hillman and Urspsrung show

that trade policies vary with the type of externality and the degree to which

environmentalists' concerns relate to global issues. In contrast, Liedy and Hoeckman

(1994) study the effects of different environmental instruments on trade policy and

find that polluters prefer inefficient instruments since these increase the level of trade

protection.

7

A distinct literature examines the impact of trade policies on the incentives to

sustainably harvest renewable resources such as forests, fisheries and wildlife. Two

opposing views have emerged in the literature. The conventional view, which is

implicit in the CITES ban on trade in endangered species, holds that trade sanctions

make harvesting less profitable and thus protect resource stocks (Daly and Cobb

(1989)). This has been challenged in numerous other studies which suggest that the

higher prices which result from trade may provide the incentives necessary to

profitably invest in the resource (Swanson (1990)). These arguments have been

examined in detail by Schulz (1996) who finds that sanctions have the desired effect

of raising resource stocks when the analysis is restricted to one species. However,

when the models are extended to include species interactions, trade sanctions may

have ambiguous effects on resource stocks. Barbier and Schulz (1997) study the

effects of trade on wildlife stocks in a model which takes account of the opportunity

costs of land allocated to conservation. Again trade restrictions are found to have

ambiguous effects on wildlife stocks.

Resource and environmental policy issues have also been examined from the

perspective of trade theory. Chichlnisky (1994) considers the consequences of trade

between a country with incomplete property rights (i.e. the South) and one with

complete property rights (i.e. the North). It is shown that trade may be Pareto

inefficient and thus worsen welfare. Brander and Taylor (1997) investigate the effects

of trade in a small economy with an open access renewable resource. They

demonstrate that trade may lower steady state utility in the resource exporting

country. Brander and Taylor (1998) extend the analysis to the case of trade between

two countries with different property rights regimes. The results reveal that when

resource stocks are at critically low levels in one country, free trade shifts production

8

to the country with the larger stocks of the resource. Thus, trade may be welfare

improving.

The contribution of this paper differs from previous work in several significant

ways. Most obviously, we deal with the influence of a lobby group on policy

decisions in a renewable resource context. This contrasts with the existing

environmental policy formation literature which has focused on static externalities.

The paper also extends the renewable resource literature by examining the impact of a

lobby group on policy outcomes. Rent seeking issues appears to have been largely

ignored in most studies of renewable resource management. We attempt to partially

fill this gap in the literature.

III The ModelThe aim of this paper is to examine whether trade strengthens or weakens the

influence of lobby groups on the harvesting decisions of a self interested government.

We therefore consider a situation where the government is responsible for

management of a resource and determines the harvest by issuing quotas. The quotas

define the maximum allowable harvest in any period. The harvester seeks to

influence the government's decisions by offering political contributions to the

government.

Let x denote the stock of the renewable resource at a given point in time. The

biological growth of the resource F(x), is a function of the existing stock. It is

assumed that Fxx < 0.8 Changes in the stock depend on the biological growth rate

(F(x)) and the harvest rate (h):

dxx F(x) h

dt= = −& (1)

8 Subscripts denote partial derivatives.

9

It is well known that under conditions of open access there is a strong

incentive for firms to over-harvest a renewable resource. The causes and solutions to

this problem have been extensively studied in the literature. However, less attention

has been paid to the role of lobby groups on resource management issues. To isolate

the effects of lobbying on policy decisions, this paper abstracts from open access

problems. Instead it is assumed that a single firm is granted a license to harvest the

resource.9 We begin by considering the consequences of lobbying when the firm's

property rights are adequately defined, in the sense that the firm has an incentive to

maximise long run profits.

The net present value of the firm's profits are defined as:

t t

t 0 t 0

e dt e (b(p,x)h S)dt∞ ∞

− −

= =

Π = −∫ ∫δ δ (2a)

where: δ is the given discount rate, p is the given world price of the resource, h is the

harvest, b(p, x) is the per unit profits from harvesting which depends on the price (p)

and available stocks of the resource (x). S defines the political contributions of the

firm in each period. In keeping with the existing literature it is supposed that bp > 0,

bx > 0, bxx ≤ 0 (see, e.g. Schulze (1996)). Finally, for simplicity it is supposed that the

entire harvest is exported overseas at a given world price (p). This assumption allows

us to focus on the interaction between trade policy and resource management.

Profits in equation (2a) are maximised subject to two constraints10. The first is

equation (1), which describes the growth of the resource. In addition, since the

government determines the maximum allowable harvest, the harvest rate in any period

cannot exceed the allowable quota (hk). Thus the second constraint is given by:

9 As noted in later sections the analysis extends to the case of n > 1 firms.10 In the current context maximising the net present value of profits would be rational if the firmknows that its political contributions influence allocation decisions and hence current and futureharvest rates.

10

h ≤ hk (2b)

In what follows, we assume that the constraint in (2b) always binds so that the actual

harvest rate depends on the government's allocation decisions.11

For any given harvest rate determined by the government (hk), the firm will

choose its lobbying contributions (S) to maximise the net present value of profits,

subject to the constraints in equations (1) and (2b). In the Appendix it is

demonstrated that long run equilibrium lobbying contributions satisfy the necessary

condition:

b(p,x) - xh

x

b hS

F=

−δ(3)

In what follows attention is focused only on long run steady state equilibria.

Thus, F(x) = h must be satisfied for the long run equilibrium stock. Note that b(p,x) -

x

x

b hF−δ

is the usual net bio-economic return from harvesting. Equation (3) reveals

that profit maximising contributions are defined by the condition that the marginal

cost of lobbying for a greater harvest (i.e. Sh), equals the net marginal benefit of the

harvest.

Resource harvesting often generates externalities. In keeping with the existing

literature it is assumed that there are non-consumptive values associated with the

resource. For forests, these may include watershed protection, salinity prevention,

soil conservation, wildlife habitat and tourism. These are defined by D(x). Non-

consumptive values are increasing in resource stocks at a non-increasing rate:

x xxD 0,D 0.> ≤

The Welfare Maximising Benchmark:

11 If this were not the case, then on the margin lobbying would not influence harvesting.

11

We begin by describing the welfare maximising equilibrium, which is used as

a benchmark for comparison with the lobbying equilibrium. In the absence of

lobbying, the government will choose a harvest rate to maximize the net present value

of social welfare. Welfare in any period is given by the sum of utility of all agents in

the model12:

W(h) = b(p,x)h + D(x) (4a)

The welfare maximising harvest rate is determined by the solution to:

t

ht 0

M a x e W(h)dtδ∞

−

=∫ (4b)

subject to: x F(x) h= −&

In a steady state, the long run equilibrium harvest satisfies:13

b(p,x) x x

x

D b hF

+−

−δ= 0 (5)

where F(x) = h must hold in the long run equilibrium.

In the welfare maximising equilibrium, the marginal bioeconomic return to the firm is

equated to the marginal utility loss from resource depletion.

IV The Political Equilibrium

Having described the welfare maximising outcome, we now turn to the

political equilibrium. The government is assumed to be self interested and derives

utility from lobby group contributions and social welfare. Following Grossman and

Helpman (1994), the government’s objective function is given by a weighted sum of

the political contributions it receives and aggregate social welfare. The discounted

utility accruing to the government is defined by:

12 Welfare is thus defined by profits plus non-consumptive benefits. Clearly, political contributions,when positive, cancel out, since contributions paid by the firm are received by the government.13 See the Appendix for details.

12

G(h) = t

t 0

e δ∞

−

=∫ (S + αW(h))dt (6a)

where α ≥ 0 is the weight given to aggregate social welfare (W(h)), relative to

political contributions (S).

Note that α represents the government’s willingness to set policies that deviate

from the welfare maximizing level in return for contributions, and therefore may be

interpreted as a measure of the level of corruption. The level of corruption is thus

reflected by the government’s willingness to allow the lobby group to influence the

resource extraction policy. This view of corruption is consistent with that of Bardhan

(1997), who defines corruption as “the use of public office for private gain” (p. 1321),

and to Shleifer and Vishny (1993, p. 599) who argue that corruption is “the sale by

government officials of government property for personal gain”.

Given the profit maximising contributions as defined in equation (3), the

government chooses the harvest rate to maximise its discounted utility (i.e. equation

6a), subject to the resource growth constraint in equation (1). In the Appendix it is

shown that the harvest which maximises the government's payoffs satisfies:

x x

x x

b h D(b )(1 ) 0

F F− + − =

− −α

αδ δ

(6b)

As noted earlier, attention is focused on long run steady state equilibria where h =

F(x).

It is instructive to briefly compare the welfare maximizing harvest, with that

under lobbying. Observe that in (6b) terms which relate to the lobbyist's payoffs

receive a weight of (1 + α) in equilibrium, while all other terms are given a weight of

α. The government therefore behaves as if it were maximizing a welfare function

which gives the lobbyist's utility a weight of (1 + α) and that of all other agents a

13

weight of α. Hence, the political equilibrium policy is distorted in favor of the lobby

group's preferences. Alternatively, this may be seen by noting that as α → 0,

equation (6b) converges to the necessary condition under profit maximising:

x

x

b hb 0

F− =

−δ. This suggests that when social welfare considerations are completely

ignored, the lobbyist's preferred solution eventuates.14

For future reference we now outline an important property of the political

equilibrium. Recall that the government selects the harvest rate, while the firm

chooses contributions. Thus, an equilibrium for this game is a contribution and a

harvest for each period, such that: (i) the contribution is feasible 15; (ii) the harvest

policy hL maximizes the government’s welfare, G(hL), taking the contribution as

given (Grossman and Helpman (1994)). From Lemma 2 of Bernheim and Whinston

(1986) the following necessary conditions yield an equilibrium of the political game:

(SI) hL Maximises G(h); subject to x F(x) h= −&

(SII) hL Maximises J )h(Gdt)h(e0t

t +Π∫≡∞

=

δ− ; subject to x F(x) h= −&

Condition (SI) asserts that the equilibrium harvest hL must maximize the

government’s payoff, given the contribution offered. Condition (SII) requires that hL

must also maximize the joint payoffs of the firm and the government. If this

condition is not satisfied, the firm will have an incentive to alter its strategy to induce

the government to change the harvest rate, and capture more of the surplus. In the

Appendix we show that maximizing (SI) and (SII), and performing the appropriate

14 Conversely, when α → ∞ the solution in equation (6b) approaches that of the welfare maximisingequilibrium in (4c).15 In this context this is taken to imply that the contribution must be non-negative. That is the lobbygroup cannot "tax" the government.

14

substitutions, yields the political equilibrium contribution schedule of the lobby

group, which satisfies:

b(p,x) - xh

x

b hS

F=

−δ(7)

Equation (7) reveals that in equilibrium, the change in the firm’s political

contributions (i.e. Sh), equals the effect of the harvest on its payoffs (i.e. b(p,x) -

x

x

b hF−δ

). Thus, as noted by Grossman and Helpman (1994), the political contributions

are locally truthful.16

Observe that the contributions required to satisfy the political equilibrium of

the game (equation (7)), are exactly equal to the individually rational contributions of

the firm as defined in equation (3). This equivalence implies that the individually

rational (Nash) contributions that maximise a firm's profits (i.e. (3)), are equal to the

contributions necessary for an equilibrium of the political game (i.e. (7)). More

significantly, it can be demonstrated that this result generalizes to the case of a lobby

group with n > 1 firms. That is, if each firm takes the contribution levels of its rivals’

as given, its Nash contribution will satisfy condition (7). This suggests that the

political equilibrium does not require contributions from firms in a lobby group

beyond the individually rational level. Thus, lobbying is not constrained by free-

riding in this model. 17

16 As in Bernheim and Whinston (1986), this can be extended to global truthfulness wherecontributions accurately represents the preferences of the lobbyist for all feasible h.17 Free-riding does not prevent lobbying in the model because the political equilibrium is sustained bythe profit maximising contributions of each firm. This issue appears to have been overlooked in theliterature and it has generally been assumed that lobbying can be undermined by free-riding in thismodel. Moreover, the political equilibrium is identical whether the lobbyists are assumed to be"groups" representing an entire industry or simply the firms acting individually. Intuitively, this followsdirectly from the local truthfulness condition . Since the focus of this paper is on resource policy issuesrather than free-riding in lobby groups, these important issues are ignored for brevity.

15

Trade sanction have often been proposed as a tool to reduce harvesting and

encourage sustainable resource management practices. The rationale for such

sanctions is that they lower profits and thus diminish the incentive to deplete

resources (see, e.g., Daly and Cobb (1989)). We now determine the effect of trade

sanctions on the government's harvesting policy in the political equilibrium.

Following Barbier and Schulze (1997) and Schulze (1996), it is asumed that sanctions

lower the price received by the producers of the resource.

Proposition 1: If the government places sufficient weight on political contributions,

then trade sanctions can lower the equilibrium stock of the natural resource.

(i.e. A necessary condition for dx/dp > 0 is that Fx > 0 and Fx is declining in α (i.e.

Fxα < 0).)

Proof: See Appendix

Intuitively this result may be explained as follows. Recall that α is the weight

given to social welfare in the government's objective function. When α is low,

political contributions are (relatively) highly valued by the government. If trade

sanctions lower prices, ceteris paribus, profits will decline. From equation (7) we

know that political contributions are locally truthful and mirror the profitability of any

harvest policy. Thus as profits decline, by local truthfulness, political contributions

fall. A government that places a high value on political donations will seek to

mitigate the decline in profits and contributions. It does this by increasing the

allowable harvest and lowering stocks of the resource.

This result has important policy consequences. It suggests that sanctions

imposed on highly corrupt regimes, which place a low weight on social welfare

considerations, may worsen environmental outcomes. This occurs because a given

16

harvest yields a smaller benefit (i.e. contribution) to the government. If contributions

vary with resource access, a corrupt government responds to sanctions by increasing

the harvest rate in order to restore its contributions. While this conclusion may seem

obvious, it does not appear to have been identified in the literature. The following

Section investigates whether this result holds when the lobbyist is given access to the

resource for a single period.

V Myopic Firm BehaviorThe results in the previous Section are based on the assumption that the firm

has secure future access to the resource and therefore has an incentive to maximise

long run profits. It is clearly important to determine the sensitivity of the results to this

assumption. Accordingly this Section considers the opposite extreme, where the firm

is granted a license to harvest for one period. The firm maximises one period profits,

which are given by:

Πs(hs) = bs(p, xs) -Ss (8)

where superscript s denotes terms in the short run profit maximizing equilibrium.

Profits are maximised subject to the constraint that the harvest cannot exceed

the politically determined quota (hs): h ≤ hs.18 As in the previous Section it is

supposed that this constraint binds, so that the firm has an incentive to lobby for

greater access to the resource. It can be verified that the profit maximizing lobbying

contributions satisfy:

bs = S sh (9)

18 Since access to the resource is only granted for one period, the firm has no incentive to take accountof the impact of its current harvest on future stocks of the resource.

17

Equation (9) is the short run profit maximizing counterpart of equation (3). It

reveals that in equilibrium the marginal benefits from lobbying for a greater harvest

(bs) are equated to the marginal costs of lobbying (S sh ).

The government's objective function is19:

Gs(h) = s sS W (h)α+ (10)

where Ws(h) = s t s s

t 0

e D (x )dt∞

−

=

Π + ∫ δ

The government chooses the harvest rate to maximise its payoffs (i.e. equation 10)

subject to the resource growth constraint in equation (1). In the Appendix it is shown

that the harvest rate in the political equilibrium satisfies:

s sx x

sx

b h Db(1 ) 0

F+

+ − =−

α αα

δ(11)

where: b = bsδ, xb = b sx δ

Proposition 2 considers the impact of trade sanctions on equilibrium resource

stock.

Proposition 2: If the government places sufficient weight on political contributions,

then trade sanctions can lower equilibrium stocks of the natural resource.

(i.e. A necessary condition for dxs/dp >0 is that F sx > 0 and Fs

x is declining in α (i.e.

F sxα < 0).))

Proof: See Appendix

Proposition 2 again reveals that trade sanctions lower resource stocks if the

government places a sufficiently high value on political contributions. This occurs

19 Since by assumption a license to harvest is granted for one period, the firm pays politicalcontributions only in the first period. Moreover, for simplicity and conformity with the previousSection it is assumed that the external damage continues in to the future.

18

because sanctions lower the profits from a given harvest, so that political

contributions decline. A government which values political donations sufficiently,

responds by increasing the harvest rate in order to mitigate the decline in

contributions. Overall these results suggest that the more responsive is the

government to the demands of harvesters, the greater is the likelihood that sanctions

may worsen environmental outcomes.

VI. A Numerical ExampleThese predictions suggest that the qualitative impact of sanctions are

unaffected by the property right regime in the political equilibrium. However, there

remains the possibility that the quantitative effects may differ substantially. To assess

the potential quantitative difference of price changes on equilibrium stocks, this

section presents a numerical example based on simple functional forms.

It is assumed that resource growth is logistical:

xF(x) rx(K )

K= − (12a)

where, r is the intrinsic growth rate and K is the carrying capacity.

For simplicity harvesting costs are assumed to be linear and are given by:

c(h) = ch (12b)

and the welfare cost from resource depletion is defined by:

D(x) ln(x)= (12c)

Equilibrium conditions (6b) and (4b) define the equilibrium stocks of the

resource. These expressions are solved numerically for the parameter values outlined

in Table 1.

Table 1 about here

Somewhat surprisingly, Table 1 reveals that equilibrium stocks are lower in

the long run equilibrium. This may be understood by noting that in the long run

19

equilibrium the firm has a stronger incentive to lobby for greater access to the

resource, hence equilibrium stocks are lower. Similarly, the decline in resource

stocks is more rapid in the long run case. This again reflects the greater intensity of

lobbying in the long run equilibrium. Finally, changes in α (the weight given to

welfare) have a proportionately greater impact on stocks when prices are low.

Intuitively, lobbying is most intense when prices are low. If the government is more

responsive to lobby group demands (i.e. has a low α) this translates into lower

resource stocks.

VII Conclusions and Implications

This paper has examined how trade and lobbying influence the resource

management policies of a self interested government. Two extreme property rights

regimes were considered. In the first, the harvester was assumed to maximise long

term profits. In the second case, it was supposed that the firm myopically maximizes

short term profits. It was shown that in both regimes, sanctions lead to lower stocks

of the renewable resource in equilibrium if the government values political donations

sufficiently. This occurs because sanctions lower the profits obtained from a given

harvest. The resource therefore yields a smaller benefit (i.e. contribution) to the

government. A government that values political donations sufficiently will adopt

policies to mitigate the decline in profits and contributions. It does this by increasing

the harvest rate. Thus, resource stocks decline in response to sanctions. In these

circumstances, if trade interventions are to be used to promote sustainable resource

management practices, detailed information would be required about the parameters

of the model. The results therefore suggest the need for caution in using trade

sanctions as a resource management tool.

20

It is worth noting that this paper has ignored a number of important issues.

Perhaps the most significant is the open access problem which has been neglected for

two reasons. First as noted earlier, open access issues have been extensively analyzed

in the literature and are ignored in this paper in order to focus on the effects of

lobbying by harvesters. More importantly, we abstract from open access problems

because lobbying and other rent seeking activities cannot be sustained under

conditions of complete free entry. To see why, observe that if an incumbent firm in

an open access regime successfully lobbies for greater access to a resource, this will

attract new entrants into the industry. New entry will erode the higher profits

obtained through lobbying. Thus, a rational incumbent will have little incentive to

lobby, since this would allow potential entrants to free ride on its lobbying efforts.

This suggests that lobbying is individually rational only when entry into the industry

is at least partly restricted. The assumption of restricted entry is arguably a

reasonable stylized description of the commercial (i.e. non- subsistence) forestry

sector in a number of Asian countries such as Malaysia, India and Indonesia where

logging concessions have been awarded to a few established players. The relevance

to other resource issues such as poaching of wildlife, where open access problems are

more pervasive, is questionable.20

Finally, it is important to note that the analysis is restricted to the long run

steady state properties of the political equilibrium. In a dynamic framework, current

actions will depend upon the history of the game. In order to render the analysis

tractable, this paper has focused upon steady state equilibria where the history of the

game is stationary. 21 It may be useful in future research to explore a political

20 However, The Economist, August 25, 2000 provides a counter example of politicians in Indiapandering to the demands of an elephant poacher.21 Alternatively, if a dynamic programming framework were adopted a stationary history could berepresented by analyzing the Markov perfect equilibria.

21

economy equilibrium in which current decisions depend upon a time varying history

of the game. This would involve a major extension of the common agency model

which may not be amenable to an analytical solution. However, this is a problem

which warrants further investigation.

22

APPENDIXDerivation of Equation (3):Given a harvest rate (h), the current-value Hamiltonian of the problem is:

H b(p,x)h S (F(x) h)= − + −µ (A1)where µ is the costate variableAssuming an interior solution the first-order conditions for the control problem are:

SdH

(b(p,x) )h 1 0dS

= − − =µ (A2)

x xb h F= − −&µ δµ µ (A3)dH

x F(x) hdµ

= = −& (A4)

Following Grossman and Helpman (1994), it is assumed that hs > 0.22 In a long runequilibrium x 0µ= =& & , using this condition performing the appropriate substitutionsand rearranging yields:

b(p,x) - xh

x

b hS

F=

−δ(A5)

Derivation of Equation (4c):The current-value Hamiltonian of the welfare maximising problem is:

H = b(p,x)h + D(x) +µ(F(x) - h) (A6)

Assuming an interior solution the first-order conditions for the control problem are:dH

b(p,x)dh

= − µ = 0 (A7)

x x x(b h D F )= − + +&µ δµ µ (A8)dH

x F(x) hdµ

= = −& (A9)

In a long run equilibrium x 0µ= =& & , thus:

b(p,x) - x x

x

D b hF

+−δ

= 0 (A10)

Derivation of Equation (6b):As noted in the text, it is assumed that h= hk. For notational brevity the superscript(k) is ignored hereafter. The current-value Hamiltonian of the government's utilitymaximising problem is:

H = S + αW+µ(F(x) - h) (A11)Assuming an interior solution the first-order conditions are:

hdH

S b 0dh

= + − =α µ = 0 (A12)

x x x( b h D F )= − + +&µ δµ α α µ (A13)dH

x F(x) hdµ

= = −& (A14)

In a long run equilibrium x 0µ= =& & , moreover, condition (A5) must also hold, thus:

22 Since hs > 0, for all feasible h and S, this implies that the inverse of h exists, so that Sh = 1/hs. Thiscondition is used in (A5).

23

x

x x

b h D(b )(1 ) 0

F F− + − =

− −α

αδ δ

(A15)

Derivation of Equation (7): The proof proceeds in three stages. First we prove that dx/dp > 0 only if Fx >0. Thenit is shown that Fx> 0 must hold in the lobbying equilibrium. Finally we demonstratethat Fx is declining in α.After rearrangement, the current-value Hamiltonian of the problem in (SII) is:

H = (1+α)b(p,x)h + α Dn(x)) +µ(F(x) - h) (A16)The necessary conditions for a long run equilibrium include:

hdH

S b 0dh

= + − =α µ (A17)

x x x(b h(1 ) D F )= − + + +&µ δµ α α µ = 0 (A18)In addition, in equilibrium condition SI must also be satisfied which implies that(A12)- (A14) must hold. Combining and rearranging yields:

b(p,x) - xh

x

b hS

F=

−δ(A19)

Proof of Proposition 1:The equilibrium condition is given by:

sx x xZ b(1 )( F ) (1 )b F D 0= + − − + − =α δ α α (A20)

Implicitly differentiating:spsx

Zdxdp Z

= − (A21)

where: s sp p xZ b (1 )( F )= δ + α δ − > 0 (the signs follows from the fact that (A20) can only

hold if sx( F ) 0δ − > and by assumption bp> 0.)

x x x xx xx x x x xxZ b (1 )( F ) b(1 )F (1 )(b F b F ) D= + α δ − − + α − + α + − α

Thus by (A21) dxdp

> 0 if xZ < 0.

Note that by assumption bx > 0, Fxx < 0, bxx < 0 Dxx < 0. Hence, a necessary condition

for dxdp

> 0 is Fx > 0.

We now show that Fx > 0 in the lobbying equilibrium.Let x x< , then since Dxx < 0 it follows that:

x xD D> . (A22) Hence condition (A22) can only hold if:

x xb(1 )( F ) b F+ − −α δ α > x xb(1 )( F ) b F+ − −α δ α (A23)Since by assumption bx > 0, bxx < 0 then: x xb b,b b< > and since Fxx < 0 then

x xF F> . It follows that this inequality in (A23) can only hold if:F F<

Now, since x x< , this implies that Fx > 0.Finally, we prove that Fx is declining in α.Upon differentiating Fx with respect to α:

24

2

xxF x

Fx∂ ∂

=∂ ∂α ∂α

.

By assumption Fxx < 0, thus 2

xF

Fx α∂

≡∂ ∂α

< 0 iff x∂

∂α >0.

To sign x∂

∂α consider the welfare function. Recall from the text that as the weight

given to welfare, α, increases, the harvest approaches the welfare maximising rate andwelfare approaches its maximal level. Thus,

x x xW x

(b F bF D )∂ ∂

= + +∂α ∂α

> 0 ∀ α∈ (0, ∞) (A24)

By assumption x xb 0,F 0,b 0,D 0> > > > and it has been shown that xF 0> . Hence

x x x(b F bF D )+ + > 0 . Thus, (A24) can only hold if x∂

∂α > 0. It follows that

2

xF

Fx α∂

≡∂ ∂α

< 0.

Derivation of Equation (11):Let s Sδ= , then s is a perpetual flow with present value of S. Similarly define theperpetual flow ˆ δΠ = Π with present value of Π. With these definitions forconformity, the problem can be analyzed in an analogous manner to that in theprevious Section. The current-value Hamiltonian of the government's utilitymaximising problem is:

H = s + α(Π + Ds(xs)) +µ(Fs(xs) - hs) (A25)Assuming an interior solution the first-order conditions are:

h hdH ˆs 0dh

= + Π − =α µ (A26)

s s sx x x

ˆ( b h D ) F )= − +&µ δµ α α µ (A27)

s sdHx F(x ) h

dµ= = −& (A28)

In a long run equilibrium x 0µ= =& & . Moreover, equation (9) which defines the profitmaximising contributions must also hold, which requires that h hs = Π =b, thus:

s sx x

sx

b F Db(1 ) 0

F+

+ − =−

α αα

δ(A29)

Proof of Proposition 2The equilibrium condition is given by:

s s s sx x x

ˆ ˆZ b(1 )( F ) b F D 0= + − − − =α δ α α (A30)Implicitly differentiating:

sspsx

Zdxdp Z

= − (A31)

25

where: s s sp p xZ b (1 )( F )= δ + α δ − > 0 (the signs follows from the fact that (A30) can only

hold if sx( F ) 0δ − > and by assumption bs

p> 0.)

xx x xx

s s s s s s s s s sx xx xx x xZ b (1 )( F ) b (1 )F (b F b F ) D= δ + α δ − − δ + α −αδ + −α (A32)

Observe that sdx

dp > 0 if s

xZ < 0. Moreover since by assumption bx > 0, Fxx < 0, bxx <

0 Dxx < 0, then a necessary condition for sdx

dp > 0 is F s

x > 0.

We now show that F sx > 0 in the lobbying equilibrium.

Let x x< , then since D sxx < 0 it follows that:

s sx xD D> .

Hence condition (A24) can only hold if:s s s s

x xb (1 )( F ) b F+ − −α δ α > s s s sx xb (1 )( F ) b F+ − −α δ α (A33)

Since by assumption bx > 0, bxx < 0 then: s s s sx xb b , b b< > and since F s

xx < 0 thens sx xF F> . It follows that the inequality in (A33) can only hold if:

s sF F< (A34)Now, since x x< , this implies that F s

x > 0.

Upon differentiating Fx with respect to α:2 s

sxs

FF

x α∂

≡∂ ∂α

ssxx

xF

∂=

∂α.

By assumption F sxx < 0, thus

2 s

s

Fx∂

∂ ∂α< 0 iff

sx∂∂α

>0.

To sign sx∂

∂α consider the welfare function. It was noted earlier that as the weight

given to welfare α increases, the harvest approaches the welfare maximising rate andwelfare approaches its maximal level. Thus,

s ss s s s sx x x

W x( b F b F D )

∂ ∂= δ + +

∂α ∂α> 0 (A35)

By assumption s s s sx xb 0,F 0,b 0,D 0> > > > and it has been shown that s

xF 0> . Hence

(A35) can only hold if sx∂

∂α > 0. Hence

2 ssxs

FF

x α∂

≡∂ ∂α

< 0.

26

REFERENCESAnderson, K. and R. Blackhurst (ed.) (1992) Greening World Trade Issues, Harvester,

Wheatsheaf, New York.Barbier, E. D, J Burgess, J Bishop and B. Aylward (1994) The Economics of the

Tropical Timber Trade, Earthscan, London.Barbier, E. D. and C. E. Schulz (1997) "Wildlife, biodiversity and trade"

Environmental and Development Economics 2: 145-172.Baron (1994) “Electoral Competition with Informed and Uninformed Voters”

American Political Science Review, 88: 33-47.Bernheim, B.D. and M.D. Whinston (1986), “Menu Auctions, Resource Allocation,

and Economic Influence,” Quarterly Journal of Economics 101(1): 1-31.Brander, J. A. and M. Scott Taylor (1997a),"International Trade and Open Acess

Renewable Resources: The Small Open Economy Case" Canadian Journal ofEconomics, 30, 526-552.

Brander, J. A. and M. Scott Taylor (1998) "Open Access Renewable Resources: Tradeand Trade Policy in a Two-Country Model" Journal of International Economics, 44,181-209.

Broad, R. (1995) "The Political Economy of Natural Resources: Case Studies ofIndonesia and the Phillipines" Journal of Developing Areas, 29: 317- 340.

Bromley, D. W. (1999) "Deforestation - Institutional Causes and Solution" In WorldForests, Society and Environment ed M. Palo and J. Uusivuori, Dordecht, TheNetherlands

Burgess, J. (1993) "Timber Production, Timber Trade and Tropical Deforestation"Ambio, 22, 136-143.

Chichilinksky, G. (1994) "North South Trade and the Global Environment" AmericanEconomic Review, 84, 851-874.

Daly H. E. and J. B. Cobb (1989) For the Common Good, Beacon Press, BostonDesai, U (1998) Ecological Policy and Politics in Developing Countries, SUNY

Press, New York.Fredriksson P. G. (1997) "The Political Economy of Pollution Taxes in a Small Open

Economy", Journal of Environmental Economics and Management, 33: 44-58.Fredriksson, P.G. (1999), “The Political Economy of Trade Liberalization and

Environmental Policy,” Southern Economic Journal 65(3): 513-25.Grossman, G.M. and E. Helpman (1994), “Protection for Sale,” American Economic

Review 84(4): 833-50.Hafner, O (1998) "The Role of Corruption in the Misappropriation of Tropical Forest

Resources and in Tropical Forest Destruction" Transparency International WorkingPaper

Hillman, A.L. and H.W. Ursprung (1994), “Greens, Supergreens, and InternationalTrade Policy: Environmental Concerns and Protectionism,” in The InternationalDimension of Environmental Policy, edited by C. Carraro, Dordrecht: Kluwer.

Leidy, M.P. and B.M. Hoekman (1994), “’Cleaning Up’ while Cleaning Up?Pollution Abatement, Interest Groups and Contingent Trade Policies,” PublicChoice 78: 241-58.

Palo, M, G, Mery and J Salmi (1987) "Deforestation in the Tropics" In Palo, M, and JSalmi Eds Deforestation or Development in the Third World , Finnish ForestResearch Institute, Helsinki.

27

Porter, R. C. (1982) "The New Approach to Wilderness Preservation through Benefit-Cost Analysis" Journal of Environmental Economics and Management 9: 59-80.

Repetto, R (1988), Public Policy and the Misuse of Forests, Cambridge UniversityPress, New York.

Schulz, C. E. (1996), "Trade Policy and Ecology" Environmental and ResourceEconomics, 8:15-38.

Stringer R (1994) Forest Development and Policy Dilemmas, FAO, Rome.Swanson (1994), "Regulating Endangered Species" Economic Policy, 16: 185-205.

28

TABLE 1Numerical Results

Long Run Short Runp x(α=10) x(α =1) xs(α =10) xs(α =1)100 2.05 1.98 2.13 2.0980 1.63 1.53 1.74 1.6960 1.23 1.12 1.35 1.2940 0.83 0.79 0.99 0.9220 0.44 0.34 0.68 0.58

Parameter values: r = 1, θ = 10, c = 5, δ = 0.1

CIES DISCUSSION PAPER SERIES

The CIES Discussion Paper series provides a means of circulating promptly papers of interest to theresearch and policy communities and written by staff and visitors associated with the Centre forInternational Economic Studies (CIES) at the Adelaide University. Its purpose is to stimulatediscussion of issues of contemporary policy relevance among non-economists as well as economists.To that end the papers are non-technical in nature and more widely accessible than papers publishedin specialist academic journals and books. (Prior to April 1999 this was called the CIES PolicyDiscussion Paper series. Since then the former CIES Seminar Paper series has been merged withthis series.)

Copies of CIES Policy Discussion Papers may be downloaded from our Web site athttp://www.adelaide.edu.au/cies/ or are available by contacting the Executive Assistant, CIES,School of Economics, Adelaide University, SA 5005 AUSTRALIA. Tel: (+61 8) 8303 5672, Fax: (+618) 8223 1460, Email: cies@adelaide.edu.au. Single copies are free on request; the cost to institutionsis US$5.00 overseas or A$5.50 (incl. GST) in Australia each including postage and handling.

For a full list of CIES publications, visit our Web site at http://www.adelaide.edu.au/cies/ or write,email or fax to the above address for our List of Publications by CIES Researchers, 1989 to 1999 plusupdates.

0046 Damania, Richard, "Trade and the Political Economy of Renewable ResourceManagement", November 2000.

0045 Rajan, Ramkishen S., Rahul Sen and Reza Siregar, "Misalignment of the Baht, TradeImbalances and the Crisis in Thailand", November 2000.

0044 Rajan, Ramkishen S., and Graham Bird, "Financial Crises and the Composition ofInternational Capital Flows: Does FDI Guarantee Stability?", November 2000.

0043 Graham Bird and Ramkishen S. Rajan, "Recovery or Recession? Post-Devaluation OutputPerformance: The Thai Experience", November 2000.

0042 Rajan, Ramkishen S. and Rahul Sen, "Hong Kong, Singapore and the East Asian Crisis:How Important were Trade Spillovers?", November 2000.

0041 Li Lin, Chang and Ramkishen S. Rajan, "Regional Versus Multilateral Solutions toTransboundary Environmental Problems: Insights from the Southeast Asian Haze", October2000. (Forthcoming in The World Economy, 2000.)

0040 Rajan, Ramkishen S., "Are Multinational Sales to Affiliates in High Tax CountriesOverpriced? A Simple Illustration", October 2000. (Forthcoming in Economia Internazionale,2000.)

0039 Ramkishen S. Rajan and Reza Siregar, "Private Capital Flows in East Asia: Boom, Bust andBeyond", September 2000. (Forthcoming in Financial Markets and Policies in East Asia,edited by G. de Brouwer, Routledge Press)

0038 Yao, Shunli, "US Permanent Normal Trade Relations with China: What is at Stake? AGlobal CGE Analysis", September 2000.

0037 Yao, Shunli, "US Trade Sanctions and Global Outsourcing to China", September 2000.0036 Barnes, Michelle L., "Threshold Relationships among Inflation, Financial Market

Development and Growth", August 2000.0035 Anderson, Kym, Chantal Pohl Nielsen and Sherman Robinson, "Estimating the Economic

Effects of GMOs: the Importance of Policy Choices and Preferences", August 2000.(Forthcoming in abridged form in Market Developments for Genetically Modified AgriculturalProducts, edited by V. Santariello, R.E. Everson and D. Zilberman, London: CABI, 2001.)

0034 Anderson, Kym and Chantal Pohl Nielsen, "GMOs, Food Safety and the Environment: WhatRole for Trade Policy and the WTO?", September 2000. (Forthcoming in Tomorrow'sAgriculture: Incentives, Institutions, Infrastructure and Innovations, edited by G.H. Petersand P. Pingali, Aldershot: Ashgate for the IAAE, 2001.)

0033 Nguyen, Tin, "Foreign Exchange Market Efficiency, Speculators, Arbitrageurs andInternational Capital Flows", July 2000.

0032 Nielsen, Chantal Pohl and Kym Anderson, "Global Market Effects of Alternative EuropeanResponses to GMOs", July 2000.

0031 Rajan, Ramkishen S., and Reza Siregar, "The Vanishing Intermediate Regime and the Taleof Two Cities: Hong Kong versus Singapore", July 2000.

0030 Rajan, Ramkishen, "(Ir)relevance of Currency Crisis Theory to the Devaluation andCollapse of the Thai Baht", July 2000. (Forthcoming in Princeton Study in InternationalEconomics, International Economics Section, Princeton University, 2000.)

0029 Wittwer, Glyn and Kym Anderson, "Accounting for Growth in the Australian Wine Industry,1987 to 2003", July 2000. (This is a revised version of Seminar Paper 99-02, "Accountingfor Growth in Australia's Grape and Wine Industries, 1986 to 2003", March 1999. RevisedNovember 2000.)

0028 Rajan, Ramkishen S, "Currency Basket Regimes for Southeast Asia: the Worst System withthe Exception of All Others", June 2000.

0027 Jones, Ronald W. and Henryk Kierzkowski, "Horizontal Aspects of Vertical Fragmentation",June 2000.

0026 Alston, Julian M., John W Freebairn, and Jennifer James, "Beggar-thy-NeighbourAdvertising: Theory and Application to Generic Commodity Promotion Programs", May2000.

0025 Anderson, Kym, "Lessons for Other Industries from Australia's Booming Wine Industry",May 2000. (Forthcoming in Australian Agribusiness Review, 8, 2000.)

0024 Farrell, Roger, "Research Issues in Japanese Foreign Direct Investment", May 2000.0023 Peng, Chao Yang, "Integrating Local, Regional and Global Assessment in China's Air

Pollution Control Policy", May 2000.0022 Maskus, Keith E., "Intellectual Property Rights and Foreign Direct Investment", May 2000.

(Forthcoming in Research Issues in Foreign Direct Investment, edited by Bijit Bora,Routledge, London, UK.)

0021 Nielsen, Chantal and Kym Anderson, "GMOs, Trade Policy, and Welfare in Rich and PoorCountries", May 2000. (Forthcoming in Standards, Regulation and Trade, edited by K.Maskus and J. Wilson, Ann Arbor: University of Michigan Press, 2001.)

0020 Lall, Sanjaya, "FDI and Development: Research Issues in The Emerging Context",(Forthcoming in Research Issues in Foreign Direct Investment, edited by Bijit Bora,Routledge, London, UK.)

0019 Markusen, James R., "Foreign Direct Investment and Trade", Forthcoming in ResearchIssues in Foreign Direct Investment, edited by Bijit Bora, Routledge, London, UK.)

0018 Kokko, Ari, "FDI and the Structure of Home Country Production", April 2000. (Forthcomingin Research Issues in Foreign Direct Investment, edited by Bijit Bora, Routledge, London,UK.)

0017 Damania, Richard, and Per G. Fredriksson, "Collective Action and Protection", March 2000.0016 Hertel, Thomas W., Kym Anderson, Joseph F. Francois, and Will Martin, "Agriculture and

Non-agricultural Liberalization in the Millennium Round", March 2000. (Forthcoming inAgriculture and the New Trade Agenda From a Development Perspective, edited by M. D.Ingco and L. A. Winters, Cambridge and New York: Cambridge University Press, 2001.)

0015 Dean, Judith M, "Does Trade Liberalization Harm the Environment? - a New Test", March2000.

0014 Bird, Graham and Ramkishen S. Rajan, "Restraining International Capital Movements:What Does it Mean?", March 2000. (Forthcoming in Global Economic Quarterly, 2000.)

0013 Schamel, Günter, and Harry de Gorter, "More on the Welfare Effects of Distortions viaEnvironmental and Trade Policy", March 2000.

0012 Bird, Graham and Ramkishen S. Rajan, "Resolving the Interest Rate Premium Puzzle:Capital Inflows and Bank Intermediation in Emerging Economies", March 2000.