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Environmental negotiations as dynamic games : Why so selfish ?

Listed author(s):

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Jacek B. KRAWCZYK

    (UNIVERSITY OF WELLINGTON, School of Economics and Finance)

  • Thomas VALLEE

    (UNIVERSITY OF NANTES, Department of Economics)

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 selfish 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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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009009.

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Length: 25
Date of creation: 01 Apr 2009
Handle: RePEc:ctl:louvir:2009009
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