Abstract
The present study develops a reciprocal dumping model between two different-sized countries, each with a monopolist company in a homogenous good market operating under conditions of cross-border pollution. Two environmental regulation instruments will be used: pollution quotas and compensatory tariffs. The optimal values of said variables will be determined, while the strategic environmental policies derived from said optimal values will be deduced. The mainly result show that if the disutility of polluting is significantly high in relation to the abatement cost, then governments impose severe controls through environmental policy, such as a zero pollution quota on companies or even an onerous compensatory tariff.
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