OPTIMAL IMPLEMENTATION OF ENVIRONMENTAL IMPROVEMENT POLICY WITH IMPLEMENTATION COSTS

Many environmental problems result from human activities and are subjects of increasing concern in the world. Thus environmental improvement policies (EIPs) have become an issue of increasing importance. In this paper we consider a problem in which an agent implements the environmental improvement policy under uncertainty. If an emission level of a pollutant arrives at a critical level, the agent has to decrease the emission to a certain level in order to improve environment. The agent problem is to minimize the expected total discounted cost which includes a cost to implement the EIP and an associated damage from the pollutant under the assumption that a state process of the pollutant follows a geometric Brownian motion. Then we nd critical emission levels of pollutant, an optimal implementation times, optimal sizes of implementation and evaluate the optimal EIP (OEIP) by using an impulse control method. Some numerical examples are practiced to illustrate our results.