International externalities, strategic interaction, and domestic politics

Domestic politics can sometimes play an influential role when externalities have strategic and international implications. If voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good, the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation. On the other hand, if the international externality is unilateral in nature, rather than reciprocal, we find that delegation is largely irrelevant, since voters’ choice of policymaker is no longer strategic in character. Similarly, if voters anticipate policymakers successfully coordinating their policies at a later stage, there also will be no difference between the policymakers’ and the median voters’ aggregate weighting of environmental emissions.