In a model where firms face a continuous choice of how much to invest in environmental innovation, we show that an ever stricter environmental policy does not always lead to ever cleaner production methods and ever lower production of polluting goods. It does so when the abatement technology is...

This paper adds to the literature on transboundary pollution by considering pollution related to both production and consumption activities. In particular, we consider a symmetric strategic two firm-two country game model with bilateral trade and transboundary pollution to analyze the effects of...