This paper investigates a Stackelberg differential game between an upstream region and a downstream region for transboundary\npollution control and ecological compensation (EC) in a river basin. Among them, the downstream region as the leader chooses its\nabatement investment level and an ecological compensation rate to encourage upstream investing in water pollution control\nfirstly. After then, the upstream region as the follower determines its abatement investment level to maximize welfare. FFurthermore,\nwe take into consideration the effects of efficiency-improving and cost-reducing learning by doing which are originated\nfrom abatement investment activity of both regions simultaneously. The results show the following. (i) There is an optimal\necological compensation rate and under which a Pareto improvement result can be obtained. (ii) Carrying out EC will shift some\nabatement investment from the downstream region into the upstream region. (iii) The efficiency-improving and cost-reducing\nlearning by doing derived from abatement investment activity of both regions can decrease the optimal ecological compensation\nrate, increase abatement investment,and improve the social welfare.
Loading....