Exports and Externalities: the other side of trade and ecological risk and Technology Diffusion in a Competitive World

This paper develops a general equilibrium model to measure welfare effects of taxes for correcting environmental externalities caused by domestic trade, focusing on exter- nalities that arise through exports. Externalities from exports come from a number of sources. Domestically owned ships, planes, and automobiles can become contaminated while visiting other regions and bring unwanted pests home, and species can be in- troduced by contaminated visitors that enter a region to consume goods and services. The paper combines insights from the public finance literature on corrective environ- mental taxes and trade literature on domestically provided services. We find that past methods for measuring welfare effects are inadequate for a wide range of externalities and show the most widely used corrective mechanism, taxes on the sector imposing the environmental externality, may often do more harm than good. The motivation for this paper is the expansion of invasive species' ranges within the United States. We apply our analytical model to the specifc example of quagga and zebra mussel (Dreissena polymorpha and Dreissena rostiformis bugenis) invasion into the U.S Pacific Northwest.