Can cross-border pollution reduce pollution?

Scandinavian Journal of Economics, 2005

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 effect 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.

International Review of Law and Economics, 1996

The paper examines a simple partial equilibrium model of a polluting industry in a world economy. Optimal pollution taxes are derived and compared for the countries individually and collectively. Objective functions of governments are permitted to give different weights to producers than to other interests, in recognition of distributional, political economy, or other objectives. It is shown that if 1) pollution does not spill across national borders, and if 2) countries are too small to affect world prices with their pollution policies, then the pollution taxes that countries set independently cannot be improved upon by international cooperation. If these conditions are not satisfied, however, then independently set pollution policies will not be optimal. If pollution spills across borders, this will cause countries to set pollution taxes too low. In contrast, if countries are large enough to affect world prices, then exporting countries will set pollution taxes too high and importing countries will set them too low. However, if the two conditions are satisfied, then pursuit by governments of political-economy or other distributional objectives does not interfere with their achieving policies that cannot be improved upon-in terms of these objectives-by international cooperation.

Social Science Research Network, 2002

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 effect 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.

Review of International Economics, 2015

This paper studies the macroeconomic effects of foreign aid taking into account environmental quality. We develop a dynamic equilibrium model in which public investments in both infrastructure and pollution abatement can be co-financed using domestic resources and international aid. We consider untied aid, aid fully tied to either infrastructure or abatement and aid equally tied to both expenditures. We find that when the extent to which agents are affected by environmental problems is taken into account, then, regardless of the chances of substitution between factors, transfers linked to both infrastructure and pollution abatement may be the best welfare-enhancing alternative.

2000

This paper examines the role of trade policy in creating incentives for cooperation in order to address transboundary stock pollution problem. We use an asymmetric dynamic model to compare outcomes of two second-best scenarios: 1) The country adversely affected by pollution, Downstream, uses a tariff policy to control for the externality, while the polluting country, Upstream, is myopic; 2) Upstream

Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, 1997

2011

We develop a two-country general equilibrium model of foreign assistance tied to environmental clean-up in the presence of transboundary pollution. The recipient country generates pollution as a by-product in the production of a 'dirty' good, which it consumes as well as exports to the donor country. In contrast to the literature which typically treats aid as a monetary transfer, we assume that foreign aid consists in a transfer of environmental technology that lowers the cost of public clean-up in the recipient country. We highlight the fact that the marginal propensities to consume the polluting good in the donor and recipient countries are driving the terms of trade effect at work in our model. The environmental and welfare outcomes are influenced by the direct, terms of trade and abatement effects of the transfer. We show that such tied aid may be Pareto improving if the clean-up effect of the foreign aid is strong enough to compensate for the donor's monetary and terms of trade losses. We finally analyze the effects of the green transfer combined with an appropriate border tax adjustment. Contrary to intuition, we find that green technology transfers and border tax adjustments are not complements.

2002

The literature has identified cross-border pollution, capital mobility and two-stage clean-up as the key features in the "trade Vs environment" debate, yet no study examines all three simultaneously. We build a two country trading block model with cross-border pollution and free movements of goods and capital between the two countries. Pollution reduces welfare and there is simultaneous private and public pollution abatement. Public pollution abatement is financed with the use of lump-sum and pollution tax revenue. We derive the Nash and cooperative lump-sum and pollution taxes. We, also, examine how cross-border pollution and capital mobility affect each country's optimal tax policies. Finally, we examine how the existence of capital mobility alters the effectiveness of pollution taxes on net pollution.

SSRN Electronic Journal, 2000

ABSTRACT This paper explores how foreign trade and foreign direct investment (FDI) condition the effect of foreign aid on environmental protection in aid recipient countries. We suggest that (1) environmental protection should be viewed as a public good, and (2) all else equal, resource flows from abroad (via aid, trade and FDI) influence governments’ incentives to provide public goods. (3) Because these resources shape governments’ incentives differently, their interactive effects should be examined. We hypothesize that at low levels of trade and FDI, foreign aid will be associated with superior environmental protection. As trade and FDI levels increase, the effect of foreign aid will diminish and eventually reverse. Our analysis of 88 aid recipients for the period, 1980-2006, lends support to our argument.

Resource and Energy Economics, 2021

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.