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Policy Diffusion in a simple Stackelberg Game


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    Strategic environmental policy games are usually based on simultaneous decision making and reach the conclusion that the policy choices are strategic substitutes. Empirical evidence, however, shows that the introduction of a regulatory instrument usually follows a consecutive pattern that is best described as policy diffusion. To introduce policy diffusion into to a strategic environmental policy game we transform the typical model setup into a Stackelberg game in which we analyze the policy decisions of two governments when one can commit to its choice. We find that the well-known trade-off between rent-seeking and the internalisation of negative externalities from pollution is mitigated when policy diffusion takes place.

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    Paper provided by Universitaet Augsburg, Institute for Economics in its series Discussion Paper Series with number 314.

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    Length: pages
    Date of creation: Dec 2010
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    Handle: RePEc:aug:augsbe:0314

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    Keywords: strategic environmental policy; policy diffusion; emission tax;

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