Transboundary Pollution Abatement: The Impact of Unilateral Commitment in Differential Games

The present study explores the strategic interactions of countries setting pollution abatement policies in a dynamic two-player game. To reach a common target of environmental quality, countries can choose to commit to a stream of pollution abate- ment right from the beginning of the game or decide upon abatement at each moment in time. Most of the literature studies homogenous strategies, where no country or all countries commit to a (same) predefined policy. The main novelty of this paper resides in the introduction of heterogeneous strategies, where only one country commits to a specific abatement policy and which is actually the kind of strategic behavior currently observed among large pollution nations. We find that the pollution level can be lower under heterogeneous than under homogenous strategies. A stringent environmental quality target will induce the committed player to produce an abatement effort that more than compensates the free-riding attitude of the non-committed player.