Optimal Border Policies for Invasive Species Under Asymmetric Information

Linda Fernandez, Glenn Sheriff

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

This paper analyzes the problem faced by a border protection agency if endogenous exporter abatement activities affect invasive species risk, allowing for unobservable differences in abatement cost. We show how the optimal inspection/penalty regime differs from the symmetric information case. Departing from previous literature, we allow for technical assistance, a policy instrument specifically permitted and commonly employed under Article 9 of the World Trade Organization Sanitary and Phytosanitary Agreement. We find the information asymmetry can make it optimal for the importing country to provide technical assistance grants for exporter risk abatement, even if it would otherwise be inefficient. Further, we show that fungibility of technical assistance with inputs in other sectors of the exporting economy affects the qualitative nature of optimal policy. If technical assistance has no outside value in the exporter's country, optimal policy is characterized by a menu of contracts balancing higher tariffs with lower penalties for being caught with an invasive. If technical assistance can be used in other sectors of the exporter's economy, it can introduce countervailing incentives making a uniform tariff/penalty combination optimal.

Original languageEnglish (US)
Pages (from-to)27-45
Number of pages19
JournalEnvironmental and Resource Economics
Volume56
Issue number1
DOIs
StatePublished - Sep 2013
Externally publishedYes

Keywords

  • Asymmetric information
  • Inspection
  • Invasive species
  • Trade policy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

Fingerprint Dive into the research topics of 'Optimal Border Policies for Invasive Species Under Asymmetric Information'. Together they form a unique fingerprint.

  • Cite this