Strategic Environmental and Trade Policies with Corporate Environmentalism

The effects of corporate environmentalism are examined in the framework of strategic environmental and trade policies. An environmentally conscious domestic firm competes with a profit-maximizing foreign firm in a third-country market. When emission taxes and export subsidies are both available, the presence of an environmentally conscious firm does not improve domestic welfare. Such a presence reduces domestic welfare when there is transboundary pollution and strong environmental consciousness. When only emission taxes are available, welfare may fall even if pollution is local. When only export subsidies are available, the presence of an environmentally conscious firm may improve domestic welfare.