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Study on investment mode of watershed downstream pollution abatement based on stochastic differential games

Author(s): Lai Ping, Cao Guo-Hua, Zhu Yong

Watershed downstream pollution abatement has become a severe real challenge for country to build up the resource saving and environment-friendly society. Propose a twoplayer, finite-horizon stochastic differential game and analyze the influence of environment projects under three cases: autarky,individual investment and cooperation. Solving it by Bellman dynamic programming and comparing welfares at different time, the results show that allowing for investment cooperation between lower reaches and upper reaches could conform to the actuality and be beneficial to realize the objective of emission reduction.

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