Environmental policy instruments and international rivalry: A dynamic analysis

The effects on the environment of international interdependencies between countries are manifold. One concern is the occurrence of environmental policy competition, or the distortion of environmental policy measures for strategic trade reasons. This thesis analyses environmental regulation of polluting firms which sell their output on an international market characterised by imperfect competition. Governments value environmental quality as well as profits for their domestic oligopolists and behave strategically. The analysis compares environmental taxes with standards on emissions. Differential game models are used to accurately model the accumulation of capital through investment. Equilibria with feedback investment strategies lead to ambiguity in the choice of instruments which can not be found in the multistage models common in the literature on strategic trade. The investment behaviour of a firm subject to a system of permits that are transferable over time is the subject of the fourth chapter. Chapter five is concerned with carbondioxide sequestration by forests. In the last two chapters, transboundary pollution and trade are combined to analyse the distortions of environmental policy instruments and firms' investment in environmental capital.