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A stochastic model for the environmental transnational pollution control problem

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Abstract

In this paper, we provide a stochastic dynamic game formulation of the transnational pollution control problem when environmental damage arises from accumulation in the atmosphere of stock pollutants, such as CO2. With a few exceptions, dynamic games in the literature on this problem have been developed in a deterministic framework. We propose a stochastic dynamic model where the inherent uncertainty of the cumulated stock pollutant's evolution due to environmental and meteorological factors is considered. We calculate the optimal path of abatement as the solution of the stochastic game for both cooperative and non-cooperative behavior of the countries. The optimality criteria assumed in our setting is the minimization of the expected discounted total cost. To illustrate our model, we present some numerical results based on real scenarios for six different regions. Copyright © 2011 John Wiley & Sons, Ltd.

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