No 8269, CESifo Working Paper Series from CESifo
I examine a policy-making game among countries that must choose both a policy instrument (e.g., a tax or a quota) and its intensity (i.e., the tax rate or the quota level) to price pollution. When countries price pollution non-cooperatively, they not only set the intensity inefficiently, they are also likely to adopt Pigouvian fees, despite quotas being better from a welfare perspective. Adopting a Pigouvian fee to address a multi-country externality generates a risk externality, and non-cooperatively chosen quotas can generate higher social welfare than maximum social welfare Pigouvian fees can deliver.
Keywords: environmental policy; global pollution; international relations (search for similar items in EconPapers)
JEL-codes: C72 D81 F50 H21 Q38 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8269
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