Question: Two countries release hazardous waste into a common lake. The cost of reducing emissions is low at first, but increases with purification. MCA = 100

Two countries release hazardous waste into a common lake. The cost of reducing emissions is low at first, but increases with purification. MCA = 100 - QA in one country and MCB = 50 - 0.5 QB in the other country, where QTOT = QA + QB is the amount of emissions that are not cleaned. The marginal valuation of purification is always 10 in country A and always 20 in country B, no matter how much is emitted.

Illustrate the countries' purification commitment at national optimum if they do not cooperate, and how much they purify in cooperation on a purification agreement. What kind of product is purification in this case. Will both countries A and B think that cooperation is positive? If not, you can suggest a way in which both countries would agree to be included in the agreement.

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