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Journal of Economics

, Volume 97, Issue 2, pp 121–140 | Cite as

Global environment and dynamic games of environmental policy in an international duopoly

  • Akihiko YanaseEmail author
Article

Abstract

This paper examines a differential game model of international pollution control in which polluting oligopolists compete in a third country market. Two alternative policy instruments (emission taxes and command-and-control regulations) are considered. A tougher emission policy in the home country enhances the foreign firm’s competitiveness because of the static “rent-shifting” effect. The foreign country also enjoys a future improvement of the global environmental quality by “free riding” on the home country’s emission reduction effort. Because of these strategic effects, the levels of environmental policy determined in the noncooperative policy game are distorted away from the socially optimal level. Moreover, the emission tax game produces a more distortionary outcome than that in the command-and-control game; it generates more pollution and lower welfare.

Keywords

International duopoly Global environment Environmental policy Differential game 

JEL Classification

C73 F12 Q28 

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Copyright information

© Springer-Verlag 2009

Authors and Affiliations

  1. 1.Graduate School of International Cultural StudiesTohoku UniversitySendaiJapan

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