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 emply it by using the coupled constraint’s Lagrange multipliers as taxation coefficients. However, to implement the solution, a coupled constraints equilibrium needs to exist and must also be unique. We consider a stylised model that possesses these properties, of the Belgian regions of Flanders and Wallonia. We analyse the regional production levels, which result from the equilibrium, as a function of the pollution standards and of the sharing rules for the satisfaction of the constraint
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Bibliographic InfoPaper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2008035.
Date of creation: 01 Dec 2008
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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. & VALLÉE, Thomas, 2008. "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," CORE Discussion Papers 2008055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.
- 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).
- 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
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