Optimal Pollution Standard in an Open Economy: Characterizing Environmental Diversity

Satya P. Das

Review of International Economics, 2001, vol. 9, issue 3, 429-442

Abstract: The paper examines the optimal pollution standard for a large open economy. Using a two‐country partial‐equilibrium framework, the optimal standards are charaterized for autarky, free trade, and free trade together with cooperation among countries in setting standards. If pollution is local, at the free‐trade equilibrium, the exporting country imposes a stricter standard than does the importing country. The ranking may be reversed if pollution is transnational. A surpriising implication is that if pollution is local, cooperation may imply a less stringent standard for both the exporting country and the importing country.

Date: 2001
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