There are always painful tradeoffs in environmental problems. In the current period, the tradeoff. has to be made between consuming environmental goods and "dirty" goods. Since many pollutants accumulate in nature and cause long time problems, the current period's decision also has important impacts on future generations. This yields another tradeoff. between control of the pollution flow and cleanup of the pollution stock in the future. For a local government, tradeoffs between strict environmental policies and local economic prosperity are also concerns. This thesis analyzes the tradeoffs made by households, firms and government under different policy regimes. Chapter 2 considers assigning tradable permits to households that are suffering from pollution generated by firms. The households can sell a limited number of permits to polluters according to personal preferences for environmental goods and "dirty" goods. It is shown that, the market transaction between households and polluters can achieve the efficient pollution level. Chapter 3 considers a case in which the stock pollution is reversible with capital investment. In a natural resource extraction model with externalities of heavy metal pollution in the surrounding farmland, the firms tradeoff. between controlling the pollution flow and abating the pollution stock, as well as the firms extraction decisions are analyzed. Chapter 4 derives the optimal environmental bond required by a local government as a financial assurance for inducing firms to do pollution abatement. A local government needs to make tradeoffs between charging a large amount of bond and encouraging local economic prosperity. For a local government, the optimal bond amount does not necessarily cover the worst-case scenario. This thesis contributes to environmental policy design by considering the interests of different parties
