Transboundary Pollution Control and Environmental Absorption Efficiency Management

Fouad Ouardighi (), Konstantin Kogan, Giorgio Gnecco and Marcello Sanguineti
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Fouad Ouardighi: ESSEC Business School
Konstantin Kogan: Bar-Ilan University
Giorgio Gnecco: IMT – School for Advanced Studies
Marcello Sanguineti: University of Genova

Chapter Chapter 3 in Essays on Pollution Control in Economics and Management Science, 2025, pp 55-92 from Springer

Abstract: Abstract In this paper, we suggest a two-player differential game model of transboundary pollution that accounts for time-dependent environmental absorption efficiency, which allows the biosphere to switch from a carbon sink to a source. We investigate the impact of negative externalities resulting from a transboundary pollution noncooperative game wherein countries are dynamically involved. Based on a linear-quadratic specification for the instantaneous revenue function, we assess transient path and steady-state differences between cooperative solution, open-loop, and Markov perfect Nash equilibria (MPNE). Regarding the methodological contribution of the paper, we suggest a particular structure of the conjectured value function to solve MPNE problems with multiplicative interaction between state variables in one state equation, so that third-order terms that arise in the Hamilton-Jacobi-Bellman equation are made negligible. Using a collocation procedure, we confirm the validity of the particular structure of the conjectured value function. The results suggest unexpected contrasts in terms of pollution control and environmental absorption efficiency management: (1) in the long run, an open-loop Nash equilibrium (OLNE) allows equivalent emissions to the social optimum but requires greater restoration efforts; (2) while an MPNE is likely to end up with lower emissions and greater restoration efforts than an OLNE, it has a much greater chance of falling in the emergency area; (3) the absence of cooperation and or precommitment becomes more costly as the initial absorption efficiency decreases; (4) more heavily discounted MPNE strategies are less robust than OLNE to prevent irreversible switching of the biosphere from a carbon sink to a source.

Keywords: Transboundary pollution; Environmental absorption efficiency; Hamilton-Jacobi-Bellman approximation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnopch:978-3-031-78227-5_3

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DOI: 10.1007/978-3-031-78227-5_3

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