Decentralized and Efficient Control of Transboundary Pollution in Federal Systems

Decentralized control of transboundary pollution in federal systems can be efficient when population crowding is socially costly. In this paper, an upstream region abates pollution or makes an interregional income transfer to the downstream region with the sole intent of deterring immigration. Because either instrument, abatement expenditure or interregional income transfer, alone implements an efficient population distribution between the regions, interregional income transfers are unnecessary for efficiency. Without explicit income transfers, each region provides the efficient portion of the aggregate level of pollution abatement in the Nash equilibrium.