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Transboundary Pollution Abatement: The Impact of Unilateral Commitment in Differential Games

Luisito Bertinelli, Amer Tabakovic, Luca Marchiori and Benteng Zou

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: The present study explores the strategic interactions of countries setting pollution abatement policies in a dynamic two-player game. To reach a common target of environmental quality, countries can choose to commit to a stream of pollution abate- ment right from the beginning of the game or decide upon abatement at each moment in time. Most of the literature studies homogenous strategies, where no country or all countries commit to a (same) predefined policy. The main novelty of this paper resides in the introduction of heterogeneous strategies, where only one country commits to a specific abatement policy and which is actually the kind of strategic behavior currently observed among large pollution nations. We find that the pollution level can be lower under heterogeneous than under homogenous strategies. A stringent environmental quality target will induce the committed player to produce an abatement effort that more than compensates the free-riding attitude of the non-committed player.

Keywords: Heterogeneous strategies; differential games; transboundary pollution; abatement. (search for similar items in EconPapers)
JEL-codes: C61 Q55 Q59 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-res
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