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Discrete Dynamics in Nature and Society
Volume 7 (2002), Issue 1, Pages 53-58

Aspects of the theory of environmental policy in developing countries

1Department of Economics, Rochester Institute of Technology, 92 Lomb Memorial Drive, Rochester, NY 14623-5604, USA
2Department of Economics and Finance, University of Dayton, 300 College Park, Dayton, OH 45469-2251, USA

Received 8 February 2001

Copyright © 2002 Hindawi Publishing Corporation. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


We study two issues relating to the conduct of environmental policy in developing countries (DCs). First, when faced with a self-financing constraint, should an environmental authority (EA) raise/lower pollution taxes over time or should it run a deficit/surplus? Second, given recent findings about the dynamic inconsistency of optimal environmental policy, should an EA make its preferences about the relative benefits of environmental protection versus production public, or should it keep its preferences private? Our analysis reveals that when faced with a self-financing constraint, it is optimal for the EA to run a deficit/surplus. Second, social losses are lower when this EA keeps its preferences private.