Date of This Version
February 2010
Abstract
We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive sufficient conditions under which the governments optimally choose an emissions tax over an emissions standard.
Recommended Citation
Hatzipanayotou, Panos; Antoniou, Fabio; and Koundouri, Phoebe, "Second Best Environmental Policies under Uncertainty" (February 05, 2010). Fondazione Eni Enrico Mattei Working Papers. Paper 393.
https://services.bepress.com/feem/paper393