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Environmental negotiations as dynamic games: Why so selfish?

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  • Raouf Boucekkine
  • Jacek B. Krawczyk
  • T. Vallée

Abstract

We study a trade-off between economic and environmental indicators using a two-stage optimal control setting where the player can switch to a cleaner technology, that is environmentally “efficient”, but economically less productive. We provide an analytical characterization of the solution paths for the case where the considered utility functions are increasing and strictly concave with respect to consumption and decreasing linearly with respect to the pollution stock. In this context, an isolated player will either immediately start using the environmentally efficient technology, or for ever continue applying the old and “dirty” technology. In a two-player (say, two neighbor countries) dynamic game where the pollution results from a sum of two consumptions, we prove existence of a Nash (open-loop) equilibrium, in which each player chooses the technology selfishly i.e., without considering the choice made by the other player. A Stackelberg game solution displays the same properties. Under cooperation, the country reluctant to adopt the technology as an equilibrium solution, chooses to switch to the cleaner technology provided it benefits from some “transfer” from the environmentally efficient partner.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2009_07.

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Date of creation: 2008
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Handle: RePEc:gla:glaewp:2009_07

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Keywords: Pollution; technology adoption; optimal control; dynamic games;

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