Table of Contents

Economic Theory for the Environment

Economic Theory for the Environment

Essays in Honour of Karl-Göran Mäler

New Horizons in Environmental Economics series

Edited by Bengt Kriström, Partha Dasgupta and Karl-Gustaf Löfgren

Karl-Göran Mäler’s work has been a mainstay of the frontiers of environmental economics for more than three decades. This outstanding book, in his honour, assembles some of the best minds in the economics profession to confront and resolve many of the problems affecting the husbandry of our national environments.

Chapter 9: The Acid Rain Game: A Formal and Mathematically Rigorous Analysis

Henk Folmer and Pierre von Mouche

Subjects: economics and finance, environmental economics, environment, environmental economics

Extract

9. The acid rain game: a formal and mathematically rigorous analysis Henk Folmer and Pierre von Mouche* 1 INTRODUCTION Until the late 1980s environmental economics was almost exclusively restricted to environmental problems that take place within national borders. The year 1989 marked a major change in that international environmental problems became more visible due to the publication of Mäler’s (1989) ‘Acid rain game’. The death of forests and lakes in Scandinavia and Central Europe inspired Mäler to present a first analysis of the problem of acidification and to put it on the economic research agenda. In this paper he takes into account that acidification is a transboundary pollution process, that is, the environment in one country is affected by emissions generated in one or more other countries. The paper focuses on the efficiency of and obstacles to international cooperation with respect to acid rain abatement, taking into account the geographical pattern of the sources of emissions of sulphur and nitrogen oxides, their transportation and their depositions. Mäler’s rationale for analysing acid rain and its impacts was not only guided by ecological and economic motives, but was also triggered by the ‘multitude of intellectual challenges’ inherent to the acid rain problem. One challenge relates to the fact that the information on causes and effects is highly uncertain. Not only does this have consequences for policy making and its analysis, but it also gives rise to empirical problems, such as estimating damage cost functions. A second challenge relates to...

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