Adaptation and the Allocation of Pollution Reduction Costs
AbstractWe 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 o¤ 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 doesn't 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.
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Bibliographic InfoPaper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 03-2013.
Length: 37 pages
Date of creation: 2013
Date of revision:
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adaptation; Shapley value; transboundary pollution; climate change; time-consistency;
Find related papers by JEL classification:
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-ENE-2013-06-04 (Energy Economics)
- NEP-ENV-2013-06-04 (Environmental Economics)
- NEP-GTH-2013-06-04 (Game Theory)
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