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Adaptation and the Allocation of Pollution Reduction Costs

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  • Hassan Benchekroun

    ()

  • Farnaz Taherkhani

Abstract

We consider a game of abatement of a transboundary pollutant. We use a time-consistent Shapley value allocation of the cost of pollution reduction, and study the sensitivity of such an allocation to countries’ adaptation to pollution. A country’s adaptation to pollution is captured by a change in its damage function. We show that if there is a reduction in the damage cost of one country only, this can harm the other countries. Some countries may end up worse off even in the case where all countries experience a uniform decrease in their damage from pollution. An important policy implication of our analysis is that the Shapley value approach to the allocation of abatement costs does not necessarily provide the right incentives for all players to act on reducing pollution damage. We determine conditions under which a uniform fall in all countries’ pollution damage benefits all countries. Copyright Springer Science+Business Media New York 2014

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Bibliographic Info

Article provided by Springer in its journal Dynamic Games and Applications.

Volume (Year): 4 (2014)
Issue (Month): 1 (March)
Pages: 32-57

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Handle: RePEc:spr:dyngam:v:4:y:2014:i:1:p:32-57

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Web page: http://www.springer.com/economics/journal/13235

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Related research

Keywords: Adaptation; Shapley value; Transboundary pollution; Climate change; Time-consistency;

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  1. Athanassoglou, Stergios & Xepapadeas, Anastasios, 2012. "Pollution control with uncertain stock dynamics: When, and how, to be precautious," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 304-320.
  2. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W.H. Parry & William A. Pizer, 2009. "Designing Climate Mitigation Policy," NBER Working Papers 15022, National Bureau of Economic Research, Inc.
  3. Germain, Marc & Toint, Philippe & Tulkens, Henry & de Zeeuw, Aart, 2003. "Transfers to sustain dynamic core-theoretic cooperation in international stock pollutant control," Journal of Economic Dynamics and Control, Elsevier, vol. 28(1), pages 79-99, October.
  4. Ficre Zehaie, 2009. "The Timing and Strategic Role of Self-Protection," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 44(3), pages 337-350, November.
  5. Petrosjan, Leon & Zaccour, Georges, 2003. "Time-consistent Shapley value allocation of pollution cost reduction," Journal of Economic Dynamics and Control, Elsevier, vol. 27(3), pages 381-398, January.
  6. Brechet, Thierry & HRITONENKO, Natali & YATSENKO, Yuri, 2010. "Adaptation and mitigation in long-term climate policies," CORE Discussion Papers 2010065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. CHANDER, Parkash & TULKENS, Henry, 1994. "A Core-Theoretic Solution for the Design of Cooperative Agreements on Transfrontier Pollution," CORE Discussion Papers 1994048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Nadezhda Kozlovskaya & Leon Petrosyan & Nikolay Zenkevich, 2010. "Coalitional Solution Of A Game-Theoretic Emission Reduction Model," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 275-286.
  9. Leon Petrosjan & Svetlana Mamkina, 2006. "Dynamic Games With Coalitional Structures," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 295-307.
  10. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
  11. Thierry Bréchet & Natali Hritonenko & Yuri Yatsenko, 2013. "Adaptation and Mitigation in Long-term Climate Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(2), pages 217-243, June.
  12. Agrawala, Shardul & Bosello, Francesco & Carraro, Carlo & de Cian, Enrica & Lanzi, Elisa, 2011. "Adapting to Climate Change: Costs, Benefits, and Modelling Approaches," International Review of Environmental and Resource Economics, now publishers, vol. 5(3), pages 245-284, August.
  13. Buob, Seraina & Stephan, Gunter, 2011. "To mitigate or to adapt: How to confront global climate change," European Journal of Political Economy, Elsevier, vol. 27(1), pages 1-16, March.
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