Revealed Preferences of an International Trade and Environment Institution

Abstract

International cooperation on environmental problems is examined through the factors influencing a North American Free Trade Agreement (NAFTA) institution’s decisions over environmental problems along the U.S.-Mexico border. An econometric study relates the approval by the NAFTA institution of environmental improvement projects to observed attributes of the proposed projects. Results show strong preference for projects solving trans-boundary wastewater pollution and the polluter pays principle. The institution does not prefer projects that generate revenues nor minimize costs. Bi-national grants and loans dominate the funding for approved projects, implying both countries pay. More U.S. projects have been approved than projects from Mexico. (JEL F18)