Hatzipanayotou, Panos Lahiri, Sajal Michael, Michael S.
Year of Publication:
CESifo Working Paper No. 638
We construct a two-country model where pollution from production is transmitted across borders. Pollution abatement is undertaken sequentially by private producers and the public sector. We characterize the Nash optimal levels of the policy instruments in the two countries: emission taxes and funds allocated for public abatement activities. We examine the implications of a number of multilateral policy reforms. One of our findings is that the magnitude of the beneficial e.ect of a reform depends on the scope of the reform, and if it is restricted to a subset of policy instruments, then the efficacy of environmental policy reform can be greatly undermined.