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Can cross-border pollution reduce pollution?

Author

Listed:
  • Panos Hatzipanayotou
  • Sajal Lahiri
  • Michael S. Michael

Abstract

We develop a two-country model of foreign aid and cross-border pollution resulting from production activities in the recipient country. There is both private and public abatement of pollution, the latter being financed through emissions tax revenue and foreign aid. We characterize a Nash equilibrium in which the donor country chooses the amount of aid and the recipient chooses the fraction of aid allocated to pollution abatement and the emission tax rate. At this equilibrium, an increase in the donor's perceived rate of cross-border pollution reduces emission levels.

Suggested Citation

  • Panos Hatzipanayotou & Sajal Lahiri & Michael S. Michael, 2002. "Can cross-border pollution reduce pollution?," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 805-818, November.
    • Handle: RePEc:cje:issued:v:35:y:2002:i:4:p:805-818
    DOI: 10.1111/1540-5982.00155
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    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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