Transboundary pollution control in asymmetric countries: do assistant investments help?

Abstract

Transboundary pollution control usually requires the cooperation of neighboring countries due to the externality of pollution. However, countries at different levels of development, which are called asymmetric countries in this paper, may have different attitudes toward this cooperation. The developing countries would like to take a free ride and they can benefit from the cooperation with developed countries, but the developed countries may not be willing to afford this cooperation cost. This paper discusses the cooperation between two asymmetric countries that developed country may provide assistant investments to help the developing country reduce pollution stock. We consider a dynamic differential game to model the transboundary pollution control between two asymmetric regions and derive the optimal equilibrium of both regions using the Hamilton-Jacobi-Bellman (HJB) equation. To explore the impact of assistant investments, numerical illustrations and sensitivity analysis are implemented to compare the equilibrium strategies under two scenarios: that with or without assistant investments. We conclude that the common pollution stock will be reduced when the developed country is willing to provide assistant investments to the developing country. Besides, the equilibrium emission strategies of both countries increase with assistant investments, which means more economic benefits for both sides.