Environmental Policies in an International Context

The global environment is a major issue between industrial and developing countries. The proposals advanced by the United Nations Earth Summit in Rio de Janeiro during June 1992 relating the environment with international debt, investment and technology policies are properly regarded as general equilibrium phenomena, centering on the behavior of markets. This is because the environmental actions of a country affect the others, and the markets for environmental resources affect all other markets. This project addresses the following unanswered questions: Why do developing countries specialize in the production and the export of goods which overuse environmental inputs such as rain forests? What is the role of international trade in global environmental issues? Is it possible to protect resources without interfering with free markets? When is market intervention required? Will taxes on the use of environmental resources improve the pattern of trade and of resource use? The research is based on the analysis of a general equilibrium model of North-South trade where the environment appears as a renewable common property resource such as aquifers, fisheries and forests, whose by-products are used as inputs to the production of traded goods. The data will be provided by simulating the model for representative examples, and used as a foundation for evaluating two alternative policies. The first is levying taxes or imposing quotas on the use of the environmental resources. The second is promoting changes in property rights for the environmental common property resources. The simulations use parameters obtained from innovative arrangements involving property rights in the case of the US and UK pharmaceutical industries and Central and South American rain forests. Illustrative case studies are given by two pharmaceutical companies in the US: Shaman Pharmaceutical of California, and Merck and Co. of New Jersey. Both use biodiversity from Latin American and Central American forests to develop medical products.