Determining optimal pollution control policies: An application of bilevel programming

This paper presents two optimization models for hazardous waste capacity planning and treatment facility locations. The complex behavior of firms in the presence of central planning decisions and price signals is investigated and it is shown that such behavior can best be captured by a hierarchical model. In particular, a central planning model, where the government is assumed to control all location/allocation decisions and a bilevel model, where the government is leader with the goal of maximizing the ‘social welfare’ via taxation is presented. Detailed formulations of both models are developed, solved, and the computational results are presented.