Abstract
ABSTRACTA differential game model is developed to compare incentives for wastewater pollution abatement of upstream and downstream countries under cooperative and noncooperative strategies. The Tijuana River is the empirical setting of water flow from south (Mexico) to north (US) where pollution stock accumulates. Asymmetry between the upstream and downstream countries for costs, damages, and emissions influences incentives to abate pollution. Cost minimization is achieved as the US can finance pollution abatement in Mexico. Game sharing rules (Shapley value, Chander–Tulkens rule, Helsinki rule, egalitarian rule) are analyzed. Financial transfers from two North American Free Trade Agreement (NAFTA) institutions are examined. In most cases of cooperation, transfer payments are positive from downstream to upstream for reductions in flow and stock of pollution. Transfer size varies according to the rule and sensitivity analysis of changes in abatement costs and damages. The two institutions follow a variation of the Helsinki rule.
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