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Dynamic Game of International Pollution Control with General Oligopolistic Equilibrium: Neary Meets Dockner and Long

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  • Akihiko Yanase

    (Nagoya University)

  • Keita Kamei

    (Seinan Gakuin University)

Abstract

This study develops a two-country differential game model of transboundary pollution control with a continuum of polluting and oligopolistic industries. Governments choose the paths of their pollution permits, the market-clearing prices of which are determined endogenously, as in a general oligopolistic equilibrium model. We consider both autarky and bilateral free trade of polluting goods and derive solutions under international cooperation, open-loop Nash equilibrium, and linear Markov-perfect Nash equilibrium in each regime. Under autarky, we obtain similar results to those in the literature; that is, international cooperation achieves the least pollution, and the linear Markov-perfect Nash equilibrium results in higher pollution than the open-loop Nash equilibrium. Under free trade, each country’s welfare depends on the emissions of both countries, and if trade is frictionless, the same solution can be achieved by international cooperation, the open-loop Nash equilibrium, and the linear Markov-perfect Nash equilibrium. Moreover, when all industries have the same number of firms and trade is frictionless, free trade is better for the environment than autarky. However, if trade costs exist, international trade may result in higher pollution than autarky.

Suggested Citation

  • Akihiko Yanase & Keita Kamei, 2022. "Dynamic Game of International Pollution Control with General Oligopolistic Equilibrium: Neary Meets Dockner and Long," Dynamic Games and Applications, Springer, vol. 12(3), pages 751-783, September.
    • Handle: RePEc:spr:dyngam:v:12:y:2022:i:3:d:10.1007_s13235-022-00434-2
    DOI: 10.1007/s13235-022-00434-2
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    Cited by:

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    2. Florian Wagener, 2022. "Dynamic Games in Environmental Economics and Management," Dynamic Games and Applications, Springer, vol. 12(3), pages 747-750, September.

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