Optimal Abatement and Emission Permit Trading Policies in a Dynamic Transboundary Pollution Game

Shuhua Chang, Suresh Sethi and Xinyu Wang ()
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Shuhua Chang: Tianjin University of Finance and Economics
Xinyu Wang: Tianjin University of Finance and Economics

Dynamic Games and Applications, 2018, vol. 8, issue 3, No 6, 542-572

Abstract: Abstract We obtain optimal emission levels and abatement expenditures in a finite-horizon transboundary pollution game with emission trading between two regions. We show that emission trading has significant impact on the optimal strategies and profits of the two regions. We find that cooperation between the regions leads to increased abatement and lower emissions, resulting in a lower pollution stock. We also provide a stochastic extension in which the pollution stock and the emission trading price are diffusion processes and solve it numerically.

Keywords: Transboundary pollution; Differential game; Pollution abatement strategies; Emission permits trading; Hamilton–Jacobi–Bellman equation (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s13235-018-0260-z

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