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The exploitation of fossil fuels under the threat of global warming and carbon taxes: A dynamic game approach

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  • Franz Wirl

Abstract

This paper considers efficient and monopolistic extraction of non-renewable (energy) resources when the resource consumption leads simultaneously to a stock externality (‘global warming’). The case of monopolistic supply leads to a dynamic game between cartelised producers and a consumers' government. For this game, we compute linear Markov perfect strategies that are characterized by preemption of the tax at the wellhead (when compared with the open loop solution). Unfortunately, the general, asymmetric two-state variable model does not allow for an explicit analytical solution. Therefore, a simplified version with one state variable (neglecting depreciation of the stock of the pollutant) is studied and a numerical example is presented. It turns out that the simplified and analytically solved framework provides a good approximation of the initial phase of the transient behaviour but not of the long run. Copyright Kluwer Academic Publishers 1995

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File URL: http://hdl.handle.net/10.1007/BF00691573
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 5 (1995)
Issue (Month): 4 (June)
Pages: 333-352

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Handle: RePEc:kap:enreec:v:5:y:1995:i:4:p:333-352

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Web page: http://www.springerlink.com/link.asp?id=100263

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  1. Feichtinger, Gustav & Wirl, Franz, 1993. "A Dynamic Variant of the Battle of the Sexes," International Journal of Game Theory, Springer, vol. 22(4), pages 359-80.
  2. Nordhaus, William D, 1993. "Optimal Greenhouse-Gas Reductions and Tax Policy in the "Dice" Model," American Economic Review, American Economic Association, vol. 83(2), pages 313-17, May.
  3. Reynolds, Stanley S., 1991. "Dynamic oligopoly with capacity adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 491-514, July.
  4. Dockner Engelbert J. & Van Long Ngo, 1993. "International Pollution Control: Cooperative versus Noncooperative Strategies," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 13-29, July.
  5. Wirl, Franz, 1993. "Energy pricing when externalities are taxed," Resource and Energy Economics, Elsevier, vol. 15(3), pages 255-270, September.
  6. Wirl Franz, 1994. "Pigouvian Taxation of Energy for Flow and Stock Externalities and Strategic, Noncompetitive Energy Pricing," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 1-18, January.
  7. Hoel, Michael, 1993. "Intertemporal properties of an international carbon tax," Resource and Energy Economics, Elsevier, vol. 15(1), pages 51-70, March.
  8. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
  9. Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May.
  10. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
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Citations

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Cited by:
  1. Christoph Böhringer & Knut Einar Rosendahl & Jan Schneider, 2013. "Unilateral Climate Policy: Can OPEC resolve the Leakage Probem?," Working Papers V-355-13, University of Oldenburg, Department of Economics, revised Mar 2013.
  2. Rémy Dullieux & Lionel Ragot & Katheline Schubert, 2011. "Carbon tax and OPEC's rents under a ceiling constraint," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00976591, HAL.
  3. Wie, Jiegen & Wennlock, Magnus & Johansson, Daniel J.A. & Sterner, Thomas, 2011. "The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation," Discussion Papers dp-11-26, Resources For the Future.
  4. Kenji Fujiwara & Ngo Van Long, 2010. "Welfare Implications of Leadership in a Resource Market Under Bilateral Monopoly," CIRANO Working Papers 2010s-16, CIRANO.
  5. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.
  6. Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
  7. Sandal, Leif Kristoffer & Steinshamn, Stein Ivar, 2004. "Pollution Decay, Consumer Awareness and Optimal Carbon Taxes," Discussion Papers 2004/7, Department of Business and Management Science, Norwegian School of Economics.
  8. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
  9. Santiago J. Rubio, 2002. "On The Coincidence Of The Feedback Nash And Stackelberg Equilibria In Economic Applications Of Differential Games," Working Papers. Serie AD 2002-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Jon Strand, 2008. "Importer and Producer Petroleum Taxation," IMF Working Papers 08/35, International Monetary Fund.
  11. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
  12. repec:old:wpaper:355 is not listed on IDEAS
  13. Karp, Larry & Siddiqui, Sauleh & Strand, Jon, 2013. "Dynamic climate policy with both strategic and non-strategic agents : taxes versus quantities," Policy Research Working Paper Series 6679, The World Bank.

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