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Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules

  • BOUCEKKINE, RAOUF

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • Krawczyk, Jacek B.
  • VALLÉE, Thomas

Consider 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 employ it by using the coupled constraints' Lagrange multipliers as taxation coefficients. We specify a stylised model that possesses those characteristics, of the Belgian regions of Flanders and Wallonia. We analytically and numerically analyse the equilibrium regional production levels as a function of the pollution standards and of the sharing rules for the satisfaction of the constraint. For the computational results, we use NIRA, which is a piece of software designed to min-maximise the associated Nikaido-Isoda function.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008055.

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Date of creation: 01 Oct 2008
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Handle: RePEc:cor:louvco:2008055
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  1. Laurent Drouet & Alain Haurie & Francesco Moresino & Jean-Philippe Vial & Marc Vielle & Laurent Viguier, 2008. "An oracle based method to compute a coupled equilibrium in a model of international climate policy," Computational Management Science, Springer, vol. 5(1), pages 119-140, February.
  2. GERMAIN, Marc & MONFORT, Philippe & BRECHET, Thierry, . "Allocation des efforts de dépollution dans des économies avec spécialisation internationale," CORE Discussion Papers RP -1851, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jacek Krawczyk, 2007. "Numerical solutions to coupled-constraint (or generalised Nash) equilibrium problems," Computational Management Science, Springer, vol. 4(2), pages 183-204, April.
  4. BOUCEKKINE, Raouf & GERMAIN, Marc, . "The burden sharing of pollution abatement costs in multi-regional open economies," CORE Discussion Papers RP -2114, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Jacek B. Krawczyk & Mabel Tidball, 2009. "How to use Rosen's normalised equilibrium to enforce a socially desirable Pareto efficient solution," Working Papers 09-20, LAMETA, Universtiy of Montpellier, revised Jan 2011.
  6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  7. Contreras, Javier & Krawczyk, Jacek & Zuccollo, James, 2008. "The invisible polluter: Can regulators save consumer surplus?," MPRA Paper 9890, University Library of Munich, Germany.
  8. Krawczyk, Jacek & Zuccollo, James, 2006. "NIRA-3: An improved MATLAB package for finding Nash equilibria in infinite games," MPRA Paper 1119, University Library of Munich, Germany.
  9. Steffan Berridge & Jacek Krawczyk, . "Relaxation Algorithms in Finding Nash Equilibrium," Computing in Economics and Finance 1997 159, Society for Computational Economics.
  10. Jong-Shi Pang & Masao Fukushima, 2005. "Quasi-variational inequalities, generalized Nash equilibria, and multi-leader-follower games," Computational Management Science, Springer, vol. 2(1), pages 21-56, 01.
  11. Krawczyk, Jacek B., 2005. "Coupled constraint Nash equilibria in environmental games," Resource and Energy Economics, Elsevier, vol. 27(2), pages 157-181, June.
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