| Abstract |
We construct a strategic trade model of an international duopoly, whereby production by exporting frms 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 .rm, 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 su�¢ cient conditions under which the governments
optimally choose an emissions tax over an emissions standard. |
