An Application of Bilevel Programming Problem in Optimal Pollution Emission Price

Abstract

Charging for the pollution is one of the ways to enhance the environmental quality. The appropriate price of the pollution emission is the most important question of the research on how to charge for the pollution. So, by constructing a bilevel programming model, we provide a novel way for solving the problem of charging for the pollution. In our model, the government (or the social regulation) chooses the optimal price of the pollution emission with consideration to firms’ response to the price. And the firms choose their optimal quantities of the production to maximize their profits at the given price of the pollution emission. Finally, a simple example is illustrated to demonstrate the feasibility of the proposed model.