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Environmental and Resource Economics

, Volume 70, Issue 2, pp 457–481 | Cite as

Cooperation and Subgame Perfect Equilibria in Global Pollution Problems with Critical Threshold

  • Eric Bahel
Article
  • 196 Downloads

Abstract

The paper examines the issue of international pollution control under a dynamic framework involving heterogeneous countries and a critical threshold. We propose an appealing specification for this type of problem, and its novelty is illustrated by the fact that countries use linear strategies in equilibrium, although their utility and damage functions are highly convex. The stock of pollution under cooperation is always lower. Surprisingly, emissions are always higher in distant periods under the cooperative scenario; and we show through examples that this is a significant finding rather than some marginal effect. It is also shown that the efficient allocation of pollution abatement is driven only by the respective technologies of the countries. Finally, a dynamic transfer scheme allowing to implement the cooperative solution is proposed.

Keywords

Global pollution Asymmetry Markov perfect equilibrium cooperation Transfers 

JEL Classification

C73 Q54 H87 

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Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Department of EconomicsVirginia Polytechnic Institute and State UniversityBlacksburgUSA

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