Comparison of negotiated uniform versus differentiated abatement standards for a transboundary pollution problem

Abstract

This paper analyses a transboundary pollution problem between two countries and studies the efficiency comparison of uniform versus differentiated abatement standards when there are imperfect transferts between countries. To achieve this goal, we use a negotiation game and the Nash bargaining solution as equilibrium. On the one hand, we remark that the argument of similarity of countries to defend the use of uniform standards is not appropriate, when there exists high level of fixed costs in abatement technology for symmetric countries. On the other hand, for asymmetric countries, according to the total welfare criteria, we notice first that differentiated standards with transfers are generally better than uniform standards with transfers. Secondly, differentiated standards without transfers always outperform uniform standards without transfers. Last, the numerical results show that the asymmetry on abatement benefits between the countries makes the uniform regime with imperfect transfers better than the differentiated regime without transfers, while an asymmetry on abatement costs gives the opposite result.Transboundary pollution, cooperative games, bargaining, standards, transfers.