Environmental quality control: a queueing game

Abstract

This paper considers a pollution economics and control problem which uses a queuing framework. This approach is shown to establish a link between a firm’s economic activity and its linkages to externalities such as pollution, environmental control (as would be considered by an environmental agency) and a number of variables commonly encountered in such problems. A number of environmental issues are addressed and a Stackleberg game is formulated between the environmental regulating agency and polluting firms where the firm is assumed to be a follower, maximizing its profits while the environmental agency is a leader, assumed to be a long run average cost manager. The solution we propose is based on the agency’s internalizing externalities at firms expense using both subsidies for pollution abatement and penalties. In this framework, environmental costs penalties, incentive for pollution abatement investment and the sampling probabilities of environmental controls are determined.