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Dynamic Climate Policy with Both Strategic and Non-strategic Agents: Taxes Versus Quantities

Author

Listed:
  • Larry Karp

    (University of California
    Ragnar Frisch Center for Economic Research)

  • Sauleh Siddiqui

    (Johns Hopkins University)

  • Jon Strand

    (The World Bank)

Abstract

We study a dynamic game where blocs of fossil fuel importers and exporters exercise market power using taxes or quotas. A non-strategic fringe of emerging and developing countries consume and produce fossil fuels. Cumulated emissions from fossil fuel consumption create climate damages. We examine Markov perfect equilibria under the four combinations of trade policies, and compare these to the corresponding static games. Taxes dominate quotas for both the strategic importer and exporter; the fringe is better off under taxes than quotas, because taxes result in lower fuel prices and less consumption by the strategic importer, lowering climate damages.

Suggested Citation

  • Larry Karp & Sauleh Siddiqui & Jon Strand, 2016. "Dynamic Climate Policy with Both Strategic and Non-strategic Agents: Taxes Versus Quantities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 135-158, September.
    • Handle: RePEc:kap:enreec:v:65:y:2016:i:1:d:10.1007_s10640-015-9901-5
    DOI: 10.1007/s10640-015-9901-5
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    Cited by:

    1. Michael Finus & Bianca Rundshagen, 2016. "Game Theory and Environmental and Resource Economics—In Honour of Alfred Endres, Part Two," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 1-4, September.
    2. Jon Strand, 2019. "Combining Carbon Taxation and Offset Payments: A New Approach to Climate Policy in Low-Income Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 949-960, November.
    3. Daniel Nachtigall, 2017. "Prices versus Quantities: The Impact of Fracking on the Choice of Climate Policy Instruments in the Presence of OPEC," Working Papers 2017001, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    4. Nachtigall, Daniel, 2017. "Prices versus quantities: The impact of fracking on the choice of climate policy instruments in the presence of OPEC," Discussion Papers 2017/6, Free University Berlin, School of Business & Economics.
    5. Karolina Ryszka & Cees Withagen, 2016. "Unilateral Climate Policies: Incentives and Effects," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 471-504, February.
    6. van der Meijden, Gerard & Ryszka, Karolina & Withagen, Cees, 2018. "Double limit pricing," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 153-167.
    7. Strand,Jon, 2021. "Incentivizing Carbon Taxation in Low-Income Countries : Tax Rebating versus Carbon Crediting," Policy Research Working Paper Series 9698, The World Bank.

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    More about this item

    Keywords

    Dynamic game; Fossil fuel markets; Market power; Climate damages; Nonstrategic fringe;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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