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Article
Transboundary pollution game with potential shift in damages
Journal of Environmental Economics and Management (2015)
  • Bruno Nkuiya, University of Alberta
Abstract
Complex systems exposed to pollution may suddenly and permanently shift to a dangerous regime. This paper studies a dynamic game among countries that face the prospect of such a shift. Each country derives some flow utility from its own emissions, which are chosen unilaterally. But flow emissions by all countries increase the pollution stock in the world. In addition to generating global damages such as global warming, the pollution stock may trigger an irreversible and abrupt jump in global damages or catastrophe at an unknown date in the future. We ask whether endogenous and exogenous threats of such a jump in damages or catastrophe mitigate the tragedy of the commons and examine their implications on welfare. Our analysis yields different emission responses to these threats as compared to the related literature that focuses only on the single-polluter case. For example, when the hazard rate is exogenous and countries commit to nonlinear strategies, we find that the threat of a possible jump in damages or catastrophe may induce a lower or larger emission level and initial welfare due to multiple equilibria. These results are maintained when the hazard rate endogenously depends on emission decisions.

Keywords
  • Tragedy of the commons; Global pollution; Regime shifts; Stochastic differential games
Publication Date
Summer July 15, 2015
DOI
doi:10.1016/j.jeem.2015.04.001
Citation Information
Bruno Nkuiya. "Transboundary pollution game with potential shift in damages" Journal of Environmental Economics and Management Vol. 72 (2015) p. 1 - 14
Available at: http://works.bepress.com/bruno-nkuiya/8/