Abstract
Considering the fact that transboundary pollution control calls for the cooperation between interested parties, this paper studies a cooperative stochastic differential game of transboundary industrial pollution between two asymmetric nations in infinite-horizon level. In this paper, we model two ways of transboundary pollution: one is an accumulative global pollutant with an uncertain evolutionary dynamic and the other is a regional nonaccumulative pollutant. In our model, firms and governments are separated entities and they play a Stackelberg game, while the governments of the two nations can cooperate in pollution reduction. We discuss the feedback Nash equilibrium strategies of governments and industrial firms, and it is found that the governments being cooperative in transboundary pollution control will set a higher pollution tax rate and make more pollution abatement effort than when they are noncooperative. Additionally, a payment distribution mechanism that supports the subgame consistent solution is proposed.
Highlights
Global environment is a whole ecosystem that is interconnected and indivisible
Considering the fact that transboundary pollution control calls for the cooperation between interested parties, this paper studies a cooperative stochastic differential game of transboundary industrial pollution between two asymmetric nations in infinite-horizon level
Our objective is to find the optimal pollution abatement strategy which maximizes the social welfare for the two nations gaming for transboundary industrial pollution control
Summary
Global environment is a whole ecosystem that is interconnected and indivisible. Any environmental pollution, misuse of resources, and ecological damage risk pressures are likely to be cross-border. We present a cooperative stochastic differential game model of transboundary industrial pollution between two asymmetric nations. Our objective is to find the optimal pollution abatement strategy which maximizes the social welfare for the two nations gaming for transboundary industrial pollution control. A way to resolve the problem, as suggested by Dockner and Nishimura [14], is to set T = ∞, so it makes sense to present a model in infinite-horizon level to analyze transboundary industrial pollution control. (iii) In our model, the asymmetry of participants in game is considered; we assume that the industrial firms in one country have more green and energy-efficient technologies than the others, and we show that the one with technology advantage may set a higher pollution tax and make more pollution abatement effort, no matter what condition it would be in, cooperation or noncooperation.
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