The exploitation of fossil fuels under the threat of global warming and carbon taxes: A dynamic game approach
This paper considers efficient and monopolistic extraction of non-renewable (energy) resources when the resource consumption leads simultaneously to a stock externality (‘global warming’). The case of monopolistic supply leads to a dynamic game between cartelised producers and a consumers' government. For this game, we compute linear Markov perfect strategies that are characterized by preemption of the tax at the wellhead (when compared with the open loop solution). Unfortunately, the general, asymmetric two-state variable model does not allow for an explicit analytical solution. Therefore, a simplified version with one state variable (neglecting depreciation of the stock of the pollutant) is studied and a numerical example is presented. It turns out that the simplified and analytically solved framework provides a good approximation of the initial phase of the transient behaviour but not of the long run. Copyright Kluwer Academic Publishers 1995
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Volume (Year): 5 (1995)
Issue (Month): 4 (June)
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- Nordhaus, William D, 1993. "Optimal Greenhouse-Gas Reductions and Tax Policy in the "Dice" Model," American Economic Review, American Economic Association, vol. 83(2), pages 313-17, May.
- Feichtinger, Gustav & Wirl, Franz, 1993. "A Dynamic Variant of the Battle of the Sexes," International Journal of Game Theory, Springer, vol. 22(4), pages 359-80.
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- Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May.
- Wirl, Franz, 1993. "Energy pricing when externalities are taxed," Resource and Energy Economics, Elsevier, vol. 15(3), pages 255-270, September.
- Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
- Wirl Franz, 1994. "Pigouvian Taxation of Energy for Flow and Stock Externalities and Strategic, Noncompetitive Energy Pricing," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 1-18, January.
- Hoel, Michael, 1993. "Intertemporal properties of an international carbon tax," Resource and Energy Economics, Elsevier, vol. 15(1), pages 51-70, March.
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