Investment Option Game for Controlling Global Stock Pollution under Uncertainty

Abstract

Stock pollution involves a tradeoff between irreversible environmental impacts and investment costs. Such a tradeoff creates opposing incentives between early- and late-policy adoptions to reduce stock pollution emissions. Earlier studies consider the effects of the uncertainty of environmental impacts on investment timing. This paper extends these studies by considering interactions between two players in order to abate stock pollution. When the uncertainty of environmental damage exists, the absence of cooperative policy may result in further environmental damage because the irreversibility of investments dominates that of environmental damages.