Economics Research Institute Study Paper
Utah State University Department of Economics
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In this paper we study some aspects of the question of international environmental regulation from a game theoretic perspective. We address two broad questions. First, we examine the circumstances under which the pursuit of unilateral environmental policy by a country in a Stackelberg game will make that country worse off Second, we study the effects of environmental regulation by means of alternate price control instruments in a Stackelberg game where there is transboundary pollution.
We find that there are plausible theoretical circumstances in which the pursuit of unilateral environmental policy is not a good idea. Further, we show that in choosing between alternate pollution control instruments, national governments typically face a tradeoff between instruments which correct more distortions but are costly to implement and instruments which correct fewer distortions but are less costly to implement. In particular, we obtain a dominance result for a tariff policy; this result favors the use of tariffs from an informational standpoint alone.
Batabyal, Amitrajeet A., "Game Models of Environmental Policy in an Open Economy" (1995). Economic Research Institute Study Papers. Paper 60.