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A dynamic game with feedback strategies for internalizing externalities

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  • Halkos, George E.
  • Papageorgiou, George J.

Abstract

In this paper we consider a dynamic nonzero-sum game between the polluting firms and the authorities. Although the proposed game is not easily solvable for the feedback case, i.e., it is not the linear quadratic case of game neither the degenerated game case, we calculate explicitly a stationary feedback equilibrium. In the proposed game the regulator has the ability to turn the optimal allocation of their efforts between pollution abatement and taxation of the polluting firms. During the game, the regulator’s criterion is the minimization of the total discounted costs, while the criterion of the polluting firms is their utility maximization. Next, sensitivity analyses regarding the efficiency parameters of both players are provided. The conclusions are that a farsighted regulator should put much effort in abatement measures (instead of taxation measures) as well as in the improvement of abatement efficiency.

Suggested Citation

  • Halkos, George E. & Papageorgiou, George J., 2017. "A dynamic game with feedback strategies for internalizing externalities," Economic Analysis and Policy, Elsevier, vol. 55(C), pages 147-157.
  • Handle: RePEc:eee:ecanpo:v:55:y:2017:i:c:p:147-157
    DOI: 10.1016/j.eap.2017.05.005
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    References listed on IDEAS

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    1. Jotzo, Frank & Mazouz, Salim, 2015. "Brown coal exit: A market mechanism for regulated closure of highly emissions intensive power stations," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 71-81.
    2. Halkos, George & Papageorgiou, George, 2014. "Controlling polluting firms: Nash and Stackelberg strategies," MPRA Paper 58947, University Library of Munich, Germany.
    3. Niemeyer, S. J. & Tisdell, J. G., 1998. "Consumer-Based Carbon Reduction Incentives: A Proposed Mixed Incentive Scheme for Reducing CO2 Emissions from Transport," Economic Analysis and Policy, Elsevier, vol. 28(1), pages 53-67, March.
    4. Halkos, George & Matsiori, Steriani, 2017. "Environmental attitude, motivations and values for marine biodiversity protection," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 69(C), pages 61-70.
    5. Shimomura, Koji, 1991. "The feedback equilibria of a differential game of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 317-338, April.
    6. Cabalu, Helen & Koshy, Paul & Corong, Erwin & Rodriguez, U-Primo E. & Endriga, Benjamin A., 2015. "Modelling the impact of energy policies on the Philippine economy: Carbon tax, energy efficiency, and changes in the energy mix," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 222-237.
    7. Halkos, George & Matsiori, Steriani, 2014. "Exploring social attitude and willingness to pay for water resources conservation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 49(C), pages 54-62.
    8. George Halkos, 1994. "Optimal abatement of sulphur emissions in Europe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(2), pages 127-150, April.
    9. Halkos, George & Matsiori, Steriani, 2012. "Determinants of willingness to pay for coastal zone quality improvement," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(4), pages 391-399.
    10. Halkos, George E., 1993. "Sulphur abatement policy: Implications of cost differentials," Energy Policy, Elsevier, vol. 21(10), pages 1035-1043, October.
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    Cited by:

    1. Halkos, George E. & Papageorgiou, George J., 2018. "Pollution, environmental taxes and public debt: A game theory setup," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 111-120.
    2. Halkos, George & Papageorgiou, George, 2017. "Public debt, pollution and environmental taxes: Nash and Stackelberg equilibria," MPRA Paper 81982, University Library of Munich, Germany.
    3. George, Halkos E. & George, Papageorgiou J. & Emmanuel, Halkos G. & John, Papageorgiou G., 2019. "Environmental regulation and economic cycles," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 172-177.

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    More about this item

    Keywords

    Optimal abatement; Taxation; Differential games; Feedback equilibrium;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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