Application of Game Theory to Transboundary Pollution

Aug 30, 2019
folder_opencategory: Management

Introduction

The essay provides brief overview of the issue of transboundary pollution in California described in the article “Secondhand Smog: Scientists Determine Amount of Ozone Pollution Drifting to California from Overseas” (Faloona & Kerlin, 2015). The application of game theory to the issue discussed in the article is shown in the current work. Much attention is paid to the economic statements and predictions concerning the joint actions of the world countries directed on minimization of harmful substance emission and elimination of pollution. The paper also discusses some challenges predicted by the economic theory. The situation presented in the article is aligned with the game theory.

Brief Overview of the Issue

Ian Faloona and Kat Kerlin (2015) described the issue of transboundary pollution in their article “Secondhand Smog: Scientists Determine Amount of Ozone Pollution Drifting to California from Overseas”. They stated that citizens of the San Joaquin Velley in California suffered from ozone pollution. According to the special researches, 10 per cent of the pollution originates from Asian countries. The major pollution takes the form of secondhand smog in California. It has considerable long-term negative effect on the American environment and causes reduction in the amount of ozone. Moreover, the authors pointed out that air pollution is an international issue. Hence, governments of different countries should join their efforts for decreasing the harmful results. Only joint actions and initiatives, which different locations of the world simultaneously implement, can lead to the reduction of air pollution (Faloona & Kerlin, 2015).

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Discussion the Economic Theory that Relates to Transboundary Pollution

The theory of joining actions of different economic players for reaching the measurable results is known as the game theory. It gives the mathematical methods for analysis and assessment of situations when several individuals take actions that will influence one another’s welfare. The game theory studies and explains the actions of parties by application of psychological assumptions for predicting and solving different problems. Colin Camerer (2003) states that game theory “expands analytical theory by adding emotion, mistakes, limited foresight, and doubts”.

Studying the strategic decision making of different participants in the event, challenge or conflict aims to obtain the understanding of how the parties should act to obtain better outcomes. Also, much attention is paid to the analysis that can be applied in reality to individuals, companies and governments. Game theory studies interaction between parties, formulates different hypotheses concerning their actions and behavior, and makes predictions for the final outcomes. Game theory shows that the cooperation of decision makers can lead to the better results than their separate attempts. In some cases, decision makers should vail their positions and lose personal benefits for reaching the mutually-established goal. The economic theory can be applied to the problem of transboundary pollution because it describes the necessity for cooperation of different parties in order to find the best possible solution for all of them. For example, governments of the involved countries can develop joint strategy and local plans of actions for minimization of harmful substance emission into the atmosphere to decrease air pollution. Their actions will have a positive effect on the environment and will protect citizens living in the affected areas.

The example of the international treaty directed towards decreasing the negative impact of harmful substances on the environment is the Kyoto Protocol, which was signed in 1992 (Koh, Lye & Lin, 2010). Almost all countries in the world have fully or partly joined the treaty or adopted its regulations. The Kyoto Protocol has the aim to lower the emission of greenhouse gasses and slow down the global warming process by setting limitations on release of harmful substances.

Statements and Predictions

Michael Finus (2000) studied the implementation of game theory to searching for solution to the global environmental problems. The author described the challenges by using mathematical and economic models. According to the investigations, the full cooperation leads to considerable increase in the global welfare. One of the main difficulties that arise during the first stages of the international cooperation is the absence of supranational institution that can enforce cooperation and observe the compliance with limitations. Hence, the enforcement of the treaty and realization of the developed strategies should be conducted by the governments.

The government representatives of different countries clearly understand that introduction and following of initiatives directed on decreasing the pollution is beneficial to all countries in the world. Thus, it is necessary to joint actions due to the transboundary character of negative influence on the environment. At the same time, the politicians also understand that the above mentioned limitations have a considerable negative effect on economies of their countries. Environment saving initiatives can be costly. The governments will be obliged to put restrictions on emission for factories and plants situated on their territory. Numerous enterprises will be required to purchase expensive equipment or to decrease the manufacturing capacities in order to comply with the regulations. The actions can lead to lower budget revenues, increased cost of production, layoff of the workers and decreased competitiveness of companies in local and international markets. Governments clearly realize that the actions have negative influence on the country’s economy. Thus, some of the countries reluctantly take part in strategies directed on combating transboundary pollution or do not fulfill the stated requirements. Hence, nowadays some of the governments made a decision to adapt only part of the international requirements directed on the environment protection. Consequently, the joint efforts aimed at the reduction of the greenhouse effect became almost unobtainable. Michael Finus (2000) in his studies proposed the following solution to the problem directed on obtaining the maximum effect from global cooperation: “emission reduction …can only be implemented if severe and credible threats to sanction non – compliance are available”.

Game theory states that the effectiveness of cooperation can be increased by combination of procedures directed on punishment for non-compliance and reward for compliance with the adopted international regulations. It should be mentioned that “a government will comply with an agreement if the discounted welfare stream from compliance exceeds the welfare stream of free – riding in one period and subsequently being punished” (Finus, 2000). Moreover, the obtained welfare should be relevant to the government. According to the predictions of game theory, the government will not comply with adopted regulations if the country does not obtain reasonable benefits. The advantages may include financial assistance, mitigation of trade limitations, etc. The insufficient environment saving measures adopted in Asian countries can be explained by the fact that the governments do not decrease emission of harmful substances. The countries either do not obtain tangible benefits or the losses from fulfilment of international emission limitations are greater than received advantages. Thus, Asian countries emit considerable amount of transboundary air pollution that causes harm to Californian valley.

One more challenge predicted by game theory is the inappropriate monitoring mechanism of the involved parties’ actions directed on reaching the joint benefit. The institution of the international body that will perform independent monitoring and constant control is the costly and difficult task, because “monitoring constitutes a social dilemma type of problem where the individual rationality constraint is most likely violated” (Finus, 2000). Every party should clearly understand that environment protection is more important than obtaining financial benefits. Hence, the conscious control of harmful substances emission by governmental institution on the territories under their jurisdictions is a prerequisite to success.

Game theory also explains the low effectiveness of current environment protection initiatives. The game theory is the reason that the coalition of many countries achieve less results than the coalition of a few participants, because a great number of involved parties “imply a high – free incentive which is difficult to control in a global context” (Finus, 2000). The tradeoff understanding forms the assumption than in the nearest future the global emission control will be based on many close coalitions of fewer parties. The strategy will enable creation of uniform acceptable emission reduction quotas. More symmetric welfare distribution will strengthen the stability of the coalition and increase the effectiveness of realized initiatives. The small alliances will be unified to obtain the global effect reflected in the decreasing of global warming.

Alignment of the Article with Game Theory

The article describes one challenge of global cooperation for environment protection, which corresponds to the game theory described above. Game theory confirms environmental challenge as a reflection of the insufficient stimulus of some countries to lower the air pollution. Their unwillingness to participate in global strategies directed on decreasing harmful emissions is based on the discrepancy between possible benefits and losses from the fulfilment of international regulations. Also, governments of Asian countries may not clearly understand the consequences of air pollution on the global environment. Therefore, the situation described in the article corresponds to the economic perspective because the outcomes are predicted by game theory. Insufficient reward for accepting global emission limitations, many parties involved in the process and asymmetrical requirements lead to the situation when governments do not fully engage in the process of decreasing environment pollution. Consequently, the global benefit of slowing down the global warming and decreasing transboundary pollution is not reached.

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Conclusion

Current work gives a brief overview of the article “Secondhand Smog: Scientists Determine Amount of Ozone Pollution Drifting to California from Overseas” that describes citizens of Californian valley suffering from air pollution partly originated in Asian countries. The authors of the article raise the question of the joint efforts aimed at decreasing the amount of harmful substances emission into the atmosphere. The issue can be explained by game theory. The economic theory uses mathematic methods for describing and modeling actions of different parties in the situation when they join attempts to reach one certain goal. The stakeholders should clearly understand that the obtained benefit will be greater than losses of each of the parties. The game theory can be applied to the above mentioned issue because only cooperative actions of different countries all over the world can decrease the environment pollution and lower the greenhouse effect. Also, the paper covers description of different challenges which may arise during the implementation of the joint strategy. One of the challenges is unwillingness of parties to play the game because of their perceptions that it will cause considerable losses and negative consequences. The challenge can be eliminated by providing additional benefits to the participants, including reimbursement.

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