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A Time-Consistent Agreement In An Interregional Differential Game On Pollution And Trade

Author

Listed:
  • FRANCISCO CABO

    (Dpto. Economía Aplicada (Matemáticas), Avda. Valle Esgueva, 6. 47011-Valladolid, Spain;
    Universidad de Valladolid, Spain)

  • ELENA ESCUDERO

    (Dpto. Fundamentos del Análisis Económico, Universidad de Valladolid, Spain)

  • GUIOMAR MARTÍN-HERRÁN

    (Dpto. Economía Aplicada (Matemáticas), Universidad de Valladolid, Spain)

Abstract

This paper studies a transboundary pollution problem between two neighbour regions as a dynamic game. These two regions do not only share an environmental problem but they are also engaged in interregional trade. A good produced in one region is traded to the other which uses it as an input. This intermediate good is supplied by the former and demanded by the latter. The supply-demand scheme determines the price and production of the intermediate good. Thus total production is fixed in both regions, and the emissions of pollutants are also determined as a by-product. Cooperation cuts down production and trade, and in consequence the emissions of pollutants. Therefore, the environmental gain from cooperation overcomes the shrink in the interregional trade. An allocation mechanism to share the surplus of cooperation is defined, which guarantees a time-consistent agreement between both regions.

Suggested Citation

  • Francisco Cabo & Elena Escudero & Guiomar Martín-Herrán, 2006. "A Time-Consistent Agreement In An Interregional Differential Game On Pollution And Trade," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 369-393.
    • Handle: RePEc:wsi:igtrxx:v:08:y:2006:i:03:n:s0219198906000977
    DOI: 10.1142/S0219198906000977
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    References listed on IDEAS

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    1. Musu, Ignazio, 1996. "Transitional Dynamics to Optimal Sustainable Growth," CEPR Discussion Papers 1282, C.E.P.R. Discussion Papers.
    2. Goldin,Ian & Winters,L. Alan (ed.), 1995. "The Economics of Sustainable Development," Cambridge Books, Cambridge University Press, number 9780521469579, November.
    3. Mason, R, 1997. "Dynamic Pollution Games," Economics Papers 129, Economics Group, Nuffield College, University of Oxford.
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    Citations

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    Cited by:

    1. Francisco Cabo & Mabel Tidball, 2022. "Cooperation in a Dynamic Setting with Asymmetric Environmental Valuation and Responsibility," Dynamic Games and Applications, Springer, vol. 12(3), pages 844-871, September.
    2. Sedakov, Artem & Qiao, Han & Wang, Shouyang, 2021. "A model of river pollution as a dynamic game with network externalities," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1136-1153.
    3. Qi Wang & Qiaoling Liu & Min Shao & Yuanhang Zhang, 2013. "Regional Air Quality Management in China: A Case Study in the Pearl River Delta," Energy & Environment, , vol. 24(7-8), pages 1373-1392, December.
    4. Charles F. Mason, 2021. "Transboundary Externalities and Reciprocal Taxes: A Differential Game Approach," Strategic Behavior and the Environment, now publishers, vol. 9(1-2), pages 27-67, July.

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    More about this item

    Keywords

    Cooperative and non-cooperative games; differential games; dynamic individual rationality; time-consistent agreement; trade and environment; transboundary pollution; JEL Classification Number: C73; JEL Classification Number: F18; JEL Classification Number: F42; JEL Classification Number: Q25;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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