Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules
AbstractConsider a country with two regions that have developed differently so that their current levels of energy efficiency differ. Each region's production involves the emission of pollutants, on which a regulator might impose restrictions. The restrictions can be related to pollution standards that the regulator perceives as binding the whole country (e.g., enforced by international agreements like the Kyoto Protocol). We observe that the pollution standards define a common constraint upon the joint strategy space of the regions. We propose a game theoretic model with a coupled constraints equilibrium as a solution to the regulator's problem of avoiding excessive pollution. The regulator can direct the regions to implement the solution by using a political pressure, or compel them to employ it by using the coupled constraints' Lagrange multipliers as taxation coefficients. We specify a stylised model that possesses those characteristics, of the Belgian regions of Flanders and Wallonia. We analytically and numerically analyse the equilibrium regional production levels as a function of the pollution standards and of the sharing rules for the satisfaction of the constraint. For the computational results, we use NIRA, which is a piece of software designed to min-maximise the associated Nikaido-Isoda function.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008055.
Date of creation: 01 Oct 2008
Date of revision:
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coupled constraints; generalised Nash equilibrium; Nikaido-Isoda function; regional economics; environmental regulations.;
Other versions of this item:
- Boucekkine, Raouf & Krawczyk, Jacek B. & Vallée, Thomas, 2010. "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1813-1835, September.
- BOUCEKKINE, Raouf & KRAWCZYK, Jacek B. & VALLEE, Thomas, . "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," CORE Discussion Papers RP -2332, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Raouf, BOUCEKKINE & Jacek B., KRAWCZYK & Thomas, VALLEE, 2008. "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2008035, Université catholique de Louvain, Département des Sciences Economiques.
- Raouf Boucekkine & Jacek B. Krawczyk & Thomas Vallée, 2009. "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," Working Papers hal-00422486, HAL.
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D7 - Microeconomics - - Analysis of Collective Decision-Making
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-25 (All new papers)
- NEP-CMP-2008-11-25 (Computational Economics)
- NEP-ENV-2008-11-25 (Environmental Economics)
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.:
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