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

Author

Listed:
  • Raouf Boucekkine

    (Department of economics and CORE - UCL - Université Catholique de Louvain)

  • Jacek B. Krawczyk

    (Victoria University of Wellington)

  • Thomas Vallée

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes)

Abstract

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., imposed 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 of the Belgian regions of Flanders and Wallonia that face a joint constraint, for which the regulator wants to develop a sharing rule. We analytically and numerically analyse the equilibrium regional production levels as a function of the pollution standards and of the sharing rules. We thus provide the regulator with an array of equilibria that he (or she) can select for implementation. For the computational results, we use NIRA, which is a piece of software designed to min-maximise the associated Nikaido-Isoda function.

Suggested Citation

  • Raouf Boucekkine & Jacek B. Krawczyk & Thomas Vallée, 2009. "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," Working Papers hal-00422486, HAL.
  • Handle: RePEc:hal:wpaper:hal-00422486
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00422486
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Contreras, Javier & Krawczyk, Jacek & Zuccollo, James, 2008. "The invisible polluter: Can regulators save consumer surplus?," MPRA Paper 9890, University Library of Munich, Germany.
    3. 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.
    4. Steffan Berridge & Jacek Krawczyk, "undated". "Relaxation Algorithms in Finding Nash Equilibrium," Computing in Economics and Finance 1997 159, Society for Computational Economics.
    5. Boucekkine Raouf & Germain Marc, 2009. "The Burden Sharing of Pollution Abatement Costs in Multi-Regional Open Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-34, June.
    6. 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, January.
    7. Marc Germain & Philippe Monfort & Thierry Bréchet, 2006. "Allocation des efforts de dépollution dans des économies avec spécialisation internationale," Revue économique, Presses de Sciences-Po, vol. 57(2), pages 219-239.
    8. Krawczyk, Jacek B., 2005. "Coupled constraint Nash equilibria in environmental games," Resource and Energy Economics, Elsevier, vol. 27(2), pages 157-181, June.
    9. 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.
    10. 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.
    11. Jacek Krawczyk, 2007. "Numerical solutions to coupled-constraint (or generalised Nash) equilibrium problems," Computational Management Science, Springer, vol. 4(2), pages 183-204, April.
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    Cited by:

    1. J. Contreras & J. B. Krawczyk & J. Zuccollo, 2016. "Economics of collective monitoring: a study of environmentally constrained electricity generators," Computational Management Science, Springer, vol. 13(3), pages 349-369, July.
    2. Arif, Faisal & Dissou, Yazid, 2016. "Regional burden sharing of GHG mitigation policies in a decentralized federation," Economic Modelling, Elsevier, vol. 52(PB), pages 390-399.
    3. repec:eee:transb:v:104:y:2017:i:c:p:667-685 is not listed on IDEAS
    4. Jacek B. Krawczyk & Mabel Tidball, 2016. "Economic Problems with Constraints: How Efficiency Relates to Equilibrium," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-19, December.
    5. Raouf Boucekkine & Natali Hritonenko & Yuri Yatsenko, 2011. "Sustainable growth under pollution quotas: optimal R&D, investment and replacement policies," Working Papers halshs-00632887, HAL.

    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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