Oates and Schwab (1988), in a seminal contribution, challenge the “conventional
wisdom” of race to the bottom in environmental policies as a result of non-cooperative policy
behavior. In a model with many small jurisdictions and local pollution, decentralized
policymaking can achieve efficient resource allocation, and if jurisdictional capital taxes are
optimally chosen, then the local governments set emissions standards efficiently. Ogawa and
Wildasin (2009), here on (OW) confirm the Oates and Schwab (1988) result of efficient resource
allocation in the case of transboundary pollution. In their model regions are small and use, in a
non-cooperative way, capital taxes to control pollution.