Trade's Dynamic Solutions to Transboundary Pollution
by
Linda Fernandez
Asst. Professor, UC Riverside

Trade's Dynamic Solutions to Transboundary Pollution

This study develops and applies a two-country differential game model to examine the effects of trade liberalization on transboundary water pollution. Water pollution is due to wastewater emissions from both countries in a shared border waterway. The model is applied to the U.S.-Mexico border with available data of pollution control costs, public health damages and trade revenues from the Rio Grande waterway. Noncooperative and cooperative games are examined with changes in trade policy (due to the North American Free Trade Agreement)and public health damages. Results show trade liberalization does offer Mexico incentive to curtail pollution in both games. Cooperation and trade liberalization limit emissions from both countries and curtail the strategic behavior of the U.S. to free-ride on Mexico’s pollution control efforts in the Markov perfect, noncooperative game.

Date received: April 25, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # caez-52.