Abstract
This paper examines a differential game model of international pollution control in which polluting oligopolists compete in a third country market. Two alternative policy instruments (emission taxes and command-and-control regulations) are considered. A tougher emission policy in the home country enhances the foreign firm's competitiveness because of the static "rent-shifting" effect. The foreign country also enjoys a future improvement of the global environmental quality by "free riding" on the home country's emission reduction effort. Because of these strategic effects, the levels of environmental policy determined in the noncooperative policy game are distorted away from the socially optimal level. Moreover, the emission tax game produces a more distortionary outcome than that in the command-and-control game; it generates more pollution and lower welfare.
Original language | English |
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Pages (from-to) | 121-140 |
Number of pages | 20 |
Journal | Journal of Economics/ Zeitschrift fur Nationalokonomie |
Volume | 97 |
Issue number | 2 |
DOIs | |
Publication status | Published - 2009 Jun 1 |
Keywords
- Differential game
- Environmental policy
- Global environment
- International duopoly
ASJC Scopus subject areas
- Economics and Econometrics
- Business, Management and Accounting(all)