Do we cooperate or compete? Should I think of self-interest or group interest? These are pertinent questions in many socio-economic problems, including pollution. Game theory is one among many mathematical methodologies available to analyze such issues. Game theory has been used by economists/mathematicians/scientists in various fields since the 1950s. It is the mathematical study of conflict and cooperation between actors or groups: animals, people, businesses, countries, or even computer algorithms (Guardian 2016). In this article, I aim to substantiate how game theory can be applied to solve some aspects of the pollution problem.
The tragedy of commons
Garret Hardings, in his seminal work (1968), talks about the tragedy of commons. How much should we use from a shared pool of resources? One of the best examples to illustrate this problem comes from fishing. Imagine there is a shared resource (like a lake) on which a community of fishermen fishes for a living. If every individual takes the common interest of sustaining the fishes into account, then they will catch modestly, and the lake shall survive. But if every individual tries to maximize his/her self-interest and fish to the maximum extent possible, then the ecosystem will collapse. The same logic applies to pollution. Every nation contributes to the greenhouse gas emissions that harm the environment (common resource). If every player (country) maximizes their self-interest, then the doomsday will get to us sooner than later.
Policy making to tackle pollution : Tax or subsidy
Generally, the individual cost involved in disposing of the waste into the commons is less than the cost involved in treating the waste (to reduce the impact on the environment) before it is disposed of. Consequently, any rational player will only follow the self-interest strategy. We can address this issue in two ways. First, increase the cost involved in disposing the waste into the commons through pollution taxes. Second, reduce the cost involved in treating the waste before emission through subsidies. Which of these two strategies will have a greater impact? Using game-theoretic modeling, we can build stylized games to predict the players’ behavior.
The dark side of fertilizer subsidies!
Many governments in developing countries provide subsidies for fertilizers so that farmers are better off. Such subsidies may lead to an overuse of fertilizers. The excess fertilizers eventually flow into rivers and pollute the water. Thus, fertilizer subsidy programs are a double-edged sword. On the one hand, they improve the well-being of the farmers. On the other hand, they contribute to an increase in water pollution. The standard fertilizer subsidy policies will only serve the first objective of the government. Rational farmers will only act to maximize his/her self-interest and will not take into account the effect of pollution (the tragedy of the commons). Game theoretic models can help in studying these problems to get insights that can be used for policy-making.
References: Guradian Science (2016)