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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

Suggested Citation

  • Hassan Benchekroun & Farnaz Taherkhani, 2014. "Adaptation and the Allocation of Pollution Reduction Costs," Dynamic Games and Applications, Springer, vol. 4(1), pages 32-57, March.
    • Handle: RePEc:spr:dyngam:v:4:y:2014:i:1:p:32-57
    DOI: 10.1007/s13235-013-0085-8
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    1. Natali Hritonenko & Victoria Hritonenko & Yuri Yatsenko, 2020. "Games with Adaptation and Mitigation," Games, MDPI, vol. 11(4), pages 1-16, December.

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    More about this item

    Keywords

    Adaptation; Shapley value; Transboundary pollution; Climate change; Time-consistency;
    All these keywords.

    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 and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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