초록 close

This paper uses a three-stage game to analyze how environmental tariffs affectthe strategic behavior of a government in designing environmental policy. Thegame is based on an international duopoly model with detrimental externality inproduction and asymmetric environmental policies between two countries. Itshows that the welfare effect of the foreign country’s strategic environmentalpolicy on the home country is ambiguous. In the circumstance that the homecountry would be worse off due to the lenient environmental policy of the foreigncountry, there exists an optimal environmental tariff. If the home country imposesthe optimal tariff on the pollution-intensive imports, any deviation from the firstbest environmental policy by the foreign country would make the home countrybetter off. In addition, the implementation of the environmental tariff wouldmitigate the motivation of the foreign country to pursue strategic environmentalpolicy, and drive the lenient environmental standard toward the efficient level. Thetheoretical results imply that, in an open economy with non-harmonizedenvironmental standards, imposing environmental tariffs on imports from thecountries with lax environmental regulations would correct the adverse welfareeffect, and more importantly induce the upward harmonization on environmentalpolicy across countries. JEL classification: Q28, Q38