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Commitment-Based Equilibrium Environmental Strategies Under Time-Dependent Absorption Efficiency

Author

Listed:
  • Fouad El Ouardighi

    (ESSEC Business School)

  • Konstantin Kogan

    (Bar-Ilan University)

  • Giorgio Gnecco

    (IMT School for Advanced Studies)

  • Marcello Sanguineti

    (University of Genova)

Abstract

This paper investigates how current and future generations are affected by commitment-based Nash equilibrium environmental strategies when the environmental absorption efficiency is susceptible to switch from a pollution sink to a source. We formulate a two-player differential game model of transboundary pollution that includes the environmental absorption efficiency as a state variable that can be enhanced thanks to restoration efforts. Based on a logarithmic specification for the instantaneous revenue function, we characterize the cooperative solution and the commitment-based Nash equilibrium strategy, and examine their differences in terms of steady state and transient behavior. We notably show that a commitment-based Nash equilibrium strategy makes it possible to prevent a definitive switching of the environmental absorption efficiency from a pollution sink to a source but imposes greater economic sacrifices on current generations than on future generations. In comparison, the cooperative solution imposes greater sacrifices on current generations in terms of revenues but it imposes lower environmental costs on both current and future generations than commitment-based Nash equilibrium strategy.

Suggested Citation

  • Fouad El Ouardighi & Konstantin Kogan & Giorgio Gnecco & Marcello Sanguineti, 2018. "Commitment-Based Equilibrium Environmental Strategies Under Time-Dependent Absorption Efficiency," Group Decision and Negotiation, Springer, vol. 27(2), pages 235-249, April.
    • Handle: RePEc:spr:grdene:v:27:y:2018:i:2:d:10.1007_s10726-017-9545-7
    DOI: 10.1007/s10726-017-9545-7
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    Cited by:

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    2. El Ouardighi, Fouad & Sim, Jeongeun & Kim, Bowon, 2021. "Pollution accumulation and abatement policies in two supply chains under vertical and horizontal competition and strategy types," Omega, Elsevier, vol. 98(C).
    3. Fouad El Ouardighi & Eugene Khmelnitsky & Marc Leandri, 2020. "Production-based pollution versus deforestation: optimal policy with state-independent and-dependent environmental absorption efficiency restoration process," Annals of Operations Research, Springer, vol. 292(1), pages 1-26, September.

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    More about this item

    Keywords

    Transboundary pollution; Environmental absorption efficiency; Cooperative solution; Commitment-based strategies;
    All these keywords.

    JEL classification:

    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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