International Pollution Problems: Unilateral Initiatives by Environmental Groups in One Country

Abstract

International pollution involving two (groups of) countries is modelled as a two-player game. Each country is characterized by specific preferences for consumption goods and the environment. Both countries produce a single consumption good with a given technology that determines pollution per unit output. Each country is economically isolated except for the presence of a global pollutant. Within a static framework, M. Hoel [J. Environ. Econom. Management20, 55–70 (1991)] shows that unilateral actions to reduce harmful emissions, advocated by environmental groups in one country, may result in higher total emissions. I characterize cooperative and noncooperative emission strategies for the two countries using welfare functions that, within a static framework, yield total emissions without cooperation always higher than those with cooperation. When both governments choose linear closed-loop strategies and one country is not sensitive to the environmental condition, the unique equilibrium exhibits less pollution than the cooperative equilibrium only if the other country cares a great deal about the well-being of future generations and has relatively low bargaining power in the negotiations. Equilibria that result from nonlinear closed-loop strategies are also characterized.