Collaborative environmental management under uncertainty

Abstract

In this chapter, we introduce stochastic elements in collaborative environmental management. Similar to the deterministic analysis in Chap. 6, the industrial sector is characterized by an international trading zone involving n nations or regions. Each government adopts its own abatement policy and tax scheme to reduce pollution. The governments have to promote business interests and at the same time have to handle the financing of the costs brought about by pollution. The industrial sectors remain competitive among themselves while the governments cooperate in pollution abatement. Industrial production creates two types of negative environmental externalities. First, pollutants emitted via industrial production cause short-term local impacts on neighboring areas of the origin of production. Examples of these short-term local impacts include passing-by waste in waterways, wind-driven suspended particles in the air, unpleasant odor, noise, dust, and heat generated in the production processes. Second, the emitted pollutants will add to the existing pollution stock in the environment and produce long-term impacts to extensive and far-away areas. Greenhouse-gases, CFC, and atmospheric particulates are examples of this form of negative environmental externality. This specification permits the proximity of the origin of industrial production to receive heavier environmental damages as production increases. Given these neighboring impacts, the individual government tax policy has to take into consideration the tax policies of other nations and these policies’ intricate effects on outputs and environmental effects. In particular, while designing tax policies to curtail their outputs, governments have to consider the inducement to neighboring nations’ output that can cause local negative environmental impacts to themselves.