Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: This paper analyzes the consequences of lobby group activity for policy outcomes in economies with transboundary pollution and international environmental policies. In our framework, international environmental policies are characterized as pollution taxes determined in a negotiation between two countries. We find, among other things, that the presence of local lobbying tends to reduce the level of pollution taxes. We also find that an increase in the environmental concern (i.e. stronger preferences for a clean environment) may reduce the pollution tax in both countries. It is also possible that increased environmental concern in one country reduces the pollution tax in the other country.

Keywords: transboundary pollution; lobbying; taxes; pollution; Nash bargain; negotiations; environmental policy

JEL-codes: D62; F18; H21; H23; H70

29 pages, First version: November 2, 2007. Revised: July 1, 2008.

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