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Transboundary Externalities and Reciprocal Taxes: A Differential Game Approach

Charles Mason ()

No 6561, CESifo Working Paper Series from CESifo Group Munich

Abstract: I investigate the interaction between a country that imports a commodity whose production contributes to a stock pollution, such as electricity, from a country that produces that commodity. If the transboundary externality is priced improperly, the application of a feed-in tariff or border tax adjustment can provide an indirect policy instrument. But the imposition of such a tariff or tax creates an incentive for the producing country to deploy some sort of pollution controlling instrument. This, in turn, creates a strategic interaction between the two countries. Because the externality is inked to a stock pollutant, this strategic interaction will play out over time, which induces a dynamic game. In this modeling context, I describe the nature of the strategic interaction, and characterize the Markov-perfect equilibrium.

Keywords: transboundary pollution; differential game; tariff; tax (search for similar items in EconPapers)
JEL-codes: C73 Q54 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-gth
Date: 2017
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