Cooperation with respect to cleaning of an international water body with stochastic environmental damage: the case of the Baltic Sea

Abstract

Cooperation with respect to international environmental problems is often hampered by the fact that some countries incur net losses from cooperation. Moreover, uncertainty of damage due to variations in pollution loads is usually ignored in analyses of international environmental cooperation. This paper analyses the allocation of abatement of nitrogen emissions among the countries surrounding the Baltic Sea as well as the corresponding distribution of the net benefits of abatement. The paper develops a simple model that accounts for uncertainty in the degradation of water quality and, hence in abatement impacts, due to the diffusion of nitrogen pollutants in the drainage basins to the coastal waters because of coastal and marine transports of the deposited nitrogen and variation in background depositions. The empirical analysis shows that no country incurs negative net benefits. Moreover, we find that the allocation of abatement and the distribution of net benefits among countries change significantly for higher risk aversion.