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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

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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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Publisher 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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Reynolds, Stanley S., 1991. "Dynamic oligopoly with capacity adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 491-514, July. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Wirl, Franz, 1993. "Energy pricing when externalities are taxed," Resource and Energy Economics, Elsevier, vol. 15(3), pages 255-270, September. [Downloadable!] (restricted)
  7. Hoel, Michael, 1993. "Intertemporal properties of an international carbon tax," Resource and Energy Economics, Elsevier, vol. 15(1), pages 51-70, March. [Downloadable!] (restricted)
  8. Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May. [Downloadable!] (restricted)
  9. 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.
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  1. Sandal, Leif Kristoffer & Steinshamn, Stein Ivar, 2004. "Pollution Decay, Consumer Awareness and Optimal Carbon Taxes," Discussion Papers 2004/7, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
  2. 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). [Downloadable!]
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