Modeling and Computation of Transboundary Pollution Game Based on Joint Implementation Mechanism

Abstract

In the paper, we use the differential game method to test the impact of joint implementation (JI) mechanism on pollution control in two bilateral countries. The Hamilton-Jacobi-Bellman (HJB) equations of the models are obtained by using the dynamic programming principle. We obtain the optimal emissions, optimal local and foreign investments in environment projects, optimal revenues, and optimal trajectories of carbon stock under three situations, namely, situation without JI, with JI (noncooperative), and with JI (cooperative), of the two countries by solving these equations. We also compare their optimal Nash equilibrium solutions. We find that the introduction of JI mechanism can slow down the growth of the carbon stocks by reducing emissions or increasing investment in emission reduction projects, compared to the situation without JI mechanism. However, the JI mechanism does not reduce the revenue of the two countries under certain conditions. Finally, some numerical tests are provided to illustrate the theoretical results.