  We analyze the implications of transboundary pollution externalities on
environmental policymaking in a spatial and finite time horizon setting. We
focus on a simple regional optimal pollution control problem in order to
compare the global and local solutions in which, respectively, the
transboundary externality is and is not taken into account in the determination
of the optimal policy by individual local policymakers. We show that the local
solution is suboptimal and as such a global approach to environmental problems
is effectively needed. Our conclusions hold true in different frameworks,
including situations in which the spatial domain is either bounded or
unbounded, and situations in which macroeconomic-environmental feedback effects
are taken into account. We also show that if every local economy implements an
environmental policy stringent enough, then the global average level of
pollution will fall. If this is the case, over the long run the entire global
economy will be able to achieve a completely pollution-free status.
