Today, many countries around the world respond to the global warming and its consequences with various policy instruments such as e.g. taxes, subsidies, emission permit trading, regulations and information campaigns. In the economic literature, policy instruments have typically been analyzed...

This paper analyzes environmental policy in a decentralized economic federation comprising two countries, where a federal government decides upon environmental targets (maximum allowable emissions) for each country, which are implemented by the national governments. Both national governments...