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Environmental negotiations as dynamic games : Why so selfish ?

Author

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  • Raouf BOUCEKKINE

    (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)

Abstract

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

Suggested Citation

  • Raouf BOUCEKKINE & Jacek B. KRAWCZYK & Thomas VALLEE, 2009. "Environmental negotiations as dynamic games : Why so selfish ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2009009
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    Keywords

    O41; Q56; Q58;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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