Strategic pollution control under free trade

Bruno Nkuiya () and Andrew J. Plantinga

Resource and Energy Economics, 2021, vol. 64, issue C

Abstract: This paper designs a reciprocal dumping model to address the control of industrial pollution between two trading partners. Firms generate transboundary pollution from production and environmental taxes represent the pollution control instrument. We ask whether environmental taxes implemented in a non-cooperative setting are more stringent than the globally efficient level. Relative to the globally efficient case, we find in the linear Markov Perfect Nash Equilibrium (MPNE) context that the tax rate for both countries is smaller and individual emissions are larger. However, these results may not hold in the non-linear MPNE case depending on market structure and environmental conditions. Unlike the symmetric equilibrium case, the tax rates are always discontinuous under asymmetric MPNEs. The asymmetric equilibrium scenario can give rise to higher individual payoffs relative to the symmetric equilibrium case.

Keywords: International oligopolies; Environmental taxes; Global pollution; Endogenous heterogeneity; Differential games (search for similar items in EconPapers)
JEL-codes: L13 O24 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:64:y:2021:i:c:s0928765521000038

DOI: 10.1016/j.reseneeco.2021.101218

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