Management of pollution from decentralized agents by local government

We consider a managerial economics problem of controlling pollution caused by decentralized economic 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 that might be spent on subsidies to encourage the polluting agents to build abatement facilities. The government also possesses legislative powers to impose environmental levies on the polluting agents for noncompliance with the standards. We solve this problem by computing the agents' reactions to the taxes and subsidies. We use a decision support tool to analyse those reactions and select the government's instruments leading to a satisfactory reply.