We consider a managerial economics problem of controlling pollution caused by decentralised agents. We build a mathematical model for a local government aiming at the achievement of certain environmental standards within a relatively short time horizon. The government has financial means which might be spent on subsidies to encourage the polluting agents to build their abatement facilities. The government also possesses legislative powers to impose environmental levies on the agents for their non compliance to the standards. We solve this problem by computing the agents' reactions to the taxes and subsidies. We analyse those reactions and select the government's instruments leading to a satisfactory reply.
Published July 1997 , 19 pages