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Optimal Abatement and Emission Permit Trading Policies in a Dynamic Transboundary Pollution Game

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  • Shuhua Chang

    (Tianjin University of Finance and Economics)

  • Suresh P. Sethi

    (The University of Texas at Dallas)

  • Xinyu Wang

    (Tianjin University of Finance and Economics)

Abstract

We obtain optimal emission levels and abatement expenditures in a finite-horizon transboundary pollution game with emission trading between two regions. We show that emission trading has significant impact on the optimal strategies and profits of the two regions. We find that cooperation between the regions leads to increased abatement and lower emissions, resulting in a lower pollution stock. We also provide a stochastic extension in which the pollution stock and the emission trading price are diffusion processes and solve it numerically.

Suggested Citation

  • Shuhua Chang & Suresh P. Sethi & Xinyu Wang, 2018. "Optimal Abatement and Emission Permit Trading Policies in a Dynamic Transboundary Pollution Game," Dynamic Games and Applications, Springer, vol. 8(3), pages 542-572, September.
    • Handle: RePEc:spr:dyngam:v:8:y:2018:i:3:d:10.1007_s13235-018-0260-z
    DOI: 10.1007/s13235-018-0260-z
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    Cited by:

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    3. Wang, Xinyu & Zhang, Shuhua & Hao, Wenwei, 2022. "Myopic vs. foresighted behaviors in a transboundary pollution game with abatement policy and emission permits trading," Chaos, Solitons & Fractals, Elsevier, vol. 156(C).
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