We analyze the effects of free trade on environmental policies in a strategic setting withtransboundary pollution. Trade liberalization can result in a race to the bottom in environmentaloutcomes, making both countries worse off. With command and control policies(quotas), there is no race to the...

We analyze non-cooperative environmental policy when the only strategic interaction between countries is through bilateral transboundary pollution, i.e., countries are closed or small open economies. Under simultaneous moves, there is no carbon leakage. However, in the sequential-move game,...