Transboundary pollution, land use and abatement policy

Transboundary pollution often affects natural resources in downstream countries. The harmful impact of upstream pollution on agricultural land use has been scantily studied. This paper models transboundary pollution and argues that in the presence of international trade between contiguous countries the polluter may find it incentive-compatible to abate pollution at the source. In particular, if the trade prospects in the upstream country depend on crucial inputs imported from the downstream, which gets affected by effluents, then the free-riding problem with abatement goes away. Further, if the upstream country cares about the welfare of its workers more than the owners of capital it would unambiguously enforce pollution abatement for its firms.