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Carbon Leakage: The Role of Sequential Policy Setting


  • Sikdar, Shiva
  • Lapan, Harvey E.


We analyze non-cooperative environmental policy when the only strategic interaction between countries is through bilateral transboundary pollution, i.e., countries are closed or small open economies. When countries set pollution taxes simultaneously, there is no carbon leakage. However, in the sequential-move game, the leader sets its pollution tax lower than the marginal damage from own pollution and lower than that in the simultaneous-move game, while the follower sets its tax higher than that in the simultaneous-move game. The only motive behind the leader's underregulation of own pollution is to reduce the incidence of transboundary pollution from the follower, i.e., to reduce carbon leakage. Aggregate pollution is higher in the sequential-move game than in the simultaneous-move game if pollution is a pure global public bad.

Suggested Citation

  • Sikdar, Shiva & Lapan, Harvey E., 2010. "Carbon Leakage: The Role of Sequential Policy Setting," Staff General Research Papers Archive 31312, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:31312

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    References listed on IDEAS

    1. Christèle Moutou & Gary W. Brester & John A. Fox, 1998. "US consumers' socioeconomic characteristics and consumption of grain-based foods," Agribusiness, John Wiley & Sons, Ltd., vol. 14(1), pages 63-72.
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    Cited by:

    1. Lapan, Harvey E. & Sikdar, Shiva, 2014. "Can Trade be good for the environment?," Staff General Research Papers Archive 39137, Iowa State University, Department of Economics.

    More about this item


    Carbon leakage; Sequential-move game; Strategic environmental policy; Trans- boundary pollution.;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy


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