We analyse whether there exists a first mover and/or a second mover (dis)advantage in a game where a more industrialized country -the leader- and a less industrialized country the follower- decide on two policy instruments (prot taxation and environmental regulation) to raise their tax income while limiting the damage from pollution. We show that when governments care about world emissions, they can use a sequential game to reach their national goals and reduce the level of world emissions, even if industrial leakage occurs. This is no longer the case when emissions are considered solely as local.

This article explores whether altruistic preferences for households in poor countries contributes to avoid the free-rider problem associated with global warming policies within non-cooperative solutions. The article analyzes optimized carbon taxes on commodities within rich countries with altruistic preferences when damage inflicted upon poor countries are accompanied with foreign aid. The article contributes to the literature by identifying two cases where the second-best optimized carbon tax for rich polluting countries exceeds the marginal damage inflicted on poor countries. First, when rich countries place a higher welfare weight on environmental damage than on economic well-being within poor countries. Second, when second-best optimal revenue raising taxes are combined with foreign aid. The article also identifies cases where the Pigouvian tax implements the social planner solution. Hence, altruistic preferences and foreign aid contributes to avoid the free-rider problem.