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Dynamic nonpoint-source pollution control policy: Ambient transfers and uncertainty

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  • Athanassoglou, Stergios

Abstract

When a regulator cannot observe or infer individual emissions, corrective policy must rely on ambient pollution data. Assuming this kind of environment, we study a class of differential games of pollution control with profit functions that are polynomial in the global pollution stock. Given an open-loop emissions strategy satisfying mild regularity conditions, an ambient transfer scheme is exhibited that induces it in Markov-perfect equilibrium (MPE). Proposed transfers are a polynomial function of the difference between actual and desired pollution levels; moreover, they are designed so that in MPE no tax or subsidy is ever levied. Their applicability under stochastic pollution dynamics is studied for a symmetric game of polluting oligopolists with linear demand. We discuss a quadratic scheme that induces agents to adopt Markovian emission strategies that are stationary and linearly decreasing in total pollution. Total expected ambient transfers are non-positive and their magnitude is linearly increasing in physical volatility, the size of the economy, and the absolute value of the slope of the inverse demand function. However, if the regulator is interested in inducing a constant emissions strategy then, in expectation, transfers vanish. The total expected ambient transfer is compared to its point-source equivalent.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 12 (December)
Pages: 2494-2509

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:12:p:2494-2509

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Keywords: Differential games Nonpoint source pollution Stochastic dynamics Policy design;

References

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Citations

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Cited by:
  1. Stergios Athanassoglou & Glenn Sheriff & Tobias Siegfried & Woonghee Tim Huh, 2011. "Optimal Mechanisms for Heterogeneous Multi-cell Aquifers," Working Papers 2011.28, Fondazione Eni Enrico Mattei.
  2. Anastasios Xepapadeas, 2011. "The Economics of Non-Point-Source Pollution," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 355-373, October.
  3. Tsur, Yacov & de Gorter, Harry, 2012. "Dynamic regulation of nonpoint source pollution when the number of emitters is large," Discussion Papers 122124, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
  4. Ewald, Christian-Oliver & Wang, Wen-Kai, 2011. "Analytic solutions for infinite horizon stochastic optimal control problems via finite horizon approximation: A practical guide," Mathematical Social Sciences, Elsevier, vol. 61(3), pages 146-151, May.

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