Abstract ：
In the case of non-point source (NPS) pollutions the individual sources cannot be monitored, the regulator can observe only the total emission level. Therefore the standard emission controlling instruments cannot be applied. The regulator defines an emission standard and if the pollution concentration is above this standard, then the firms are uniformly taxed and if it is below the standard then the firms receive uniform subsidies. In the case of a duopoly this is a three person game between the firms and the regulator. The firms are profit maximizers, the regulator wants to maximize social welfare. A leader-follower model is defined where the regulator is the leader with defining the environmental standard, and the firms are the followers in finding their optimal output levels and abatement technologies. The firms use a two-stage process, first finding their optimal output levels and then determining the best abatement technologies with optimal output levels. The three stages are described and optimal choices are determined. It is also shown that the total emission level can be effectively controlled by the ambient taxes.

Keywords : Three-stage game, Leader-follower model, Non-point source

Pollutions: Ambient charge, Cournot competition