Toshiyuki Fujita

Bilateral cooperation for transboundary pollution problems

We have modeled pollution abatement games between a developed country and a developing country and examined how the equilibrium changes with international cooperation: financial aid and technological aid. We show that both types of cooperation can increase the total abatement at the equilibrium, and in the technological aid case, both countries abate more than in the base case under certain conditions. These results imply the effectiveness of bilateral cooperative relationships.

Basics in Environmental Economics and Environmental Policies

This chapter explains the basic concepts in the economic analysis of environmental problems. First, Sect. 15.1 is an overview of the relationship between the environment and society, followed by Sect. 15.2, which uses graphs to explain the cause of environmental problems from an economics viewpoint. The environment tends to be exploited because it is not adequately priced owing to the lack of trading in the market. In order to prevent this exploitation, it is necessary to build structures or systems to inform people of the value of the environment (i.e., environmental policies). Section 15.3 covers the optimum pollution standard as a desirable aim of environmental policies, while Sect. 15.4 introduces practical environmental policy procedures.

The Effects of Irreversibilities on the Optimal Timing of Pollution Control Policies

We construct a real option model in which government determines the timing of investment in pollution control and examine how irreversibilities affect the optimal investment decisions. Investment is assumed to be completely irreversible and its benefit Ca value of damage parameter) is uncertain. Irreversibility of emissions is also considered. By comparing the optimal policies for various cases, we get the following results. Irreversibility of investment delays the optimal timing of policy implementation and this effect gets stronger as the degree of uncertainty increases. Irreversibility of emissions works for the opposite direction, but it does not depend on the degree of uncertainty.

Design of international environmental agreements under uncertainty

We present a simple game model of international environmental agreements and examine the effects of learning (resolution of uncertainty) on the stability of agreements. An agreement is said to be stable if no countries have an incentive to defect from it and free-ride. We have shown that whether negotiations are conducted before or after learning does not have a significant effect on the stability of an agreement, and that it is necessary to include “punishment” in the rules, which means that countries in a coalition should respond to countries defecting from the agreement by individually reducing the amount of their abatements to Nash equilibrium levels. Also shown is the fact that side payments are essential to realization of a stable imputation. It is important to include rules requiring technological and financial aid for abatement of anthropogenic pollutants.