Sharing a polluted river network

Dong, Baomin and Ni, Debing and Wang, Yuntong (2012): Sharing a polluted river network. Forthcoming in: Environmental and Resource Economics

Abstract

A polluted river network is populated with agents (e.g., firms, villages, municipalities, or countries) located upstream and downstream. This river network must be cleaned, the costs of which must be shared among the agents. We model this problem as a cost sharing problem on a tree network. Based on the two theories in international disputes, namely the Absolute Territorial Sovereignty (ATS) and the Unlimitted Territorial Integrity (UTI), we propose three different cost sharing methods for the problem. They are the Local Responsibility Sharing (LRS), the Upstream Equal Sharing (UES), and the Downstream Equal Sharing (DES), respectively. The LRS and the UES generalize Ni and Wang ("Sharing a polluted river", Games Econ. Behav., 60 (2007), 176-186) but the DES is new. The DES is based on a new interpretation of the UTI. We provide axiomatic characterizations for the three methods. We also show that they coincide with the Shapley values of the three different games that can be defined for the problem. Moreover, we show that they are in the cores of the three games, respectively. Our methods can shed light on pollution abatement of a river network with multiple sovereignties.

• Item Type: MPRA Paper
• Language: English
• Keywords: River network, Water pollution, Cost sharing, the Shapley value
• Subjects: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C71 - Cooperative Games; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis

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