analyses two extensions of that model: transboundary pollution and the inclusion of consumer's surplus. Our interest in these … limited impact on Ulph's conclusions, but considering transboundary pollution has important consequences. Under perfect …

, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This … are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re …-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is …