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Pollution abatement and reservation prices in a market game

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  • Halkos, George
  • Papageorgiou, George

Abstract

In this paper we set up an oligopolistic market model, where firms invest in pollution abatement in order to increase the whole market size via an increase in the consumers’ reservation price. Moreover, we suppose that the demand function is not a linear one and the resulting game is not a usual linear quadratic one. In the considered model we investigate the open loop, the memory less closed-loop and the collusive patterns equilibrium. Additionally, we examine the social planning perspective. In the case of a convex demand we found the surprising result that the control and state variables have higher values in the open-loop steady state equilibrium than in the closed loop, while in a linear demand case the equilibrium is undetermined. In all cases we find that only if the market demand has concave curvature are the conclusions clear. A number of propositions and remarks are provided.

Suggested Citation

  • Halkos, George & Papageorgiou, George, 2012. "Pollution abatement and reservation prices in a market game," MPRA Paper 42150, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42150
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    References listed on IDEAS

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    4. George E. Halkos & George J. Papageorgiou, 2012. "Pollution Control Policy: A Dynamic Taxation Scheme," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 6(1), pages 14-37, March.
    5. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
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    7. Naimzada, Ahmad K. & Sbragia, Lucia, 2006. "Oligopoly games with nonlinear demand and cost functions: Two boundedly rational adjustment processes," Chaos, Solitons & Fractals, Elsevier, vol. 29(3), pages 707-722.
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    10. R. Cellini & L. Lambertini, 2003. "Advertising in a Differential Oligopoly Game," Journal of Optimization Theory and Applications, Springer, vol. 116(1), pages 61-81, January.
    11. Forster, Bruce A., 1980. "Optimal energy use in a polluted environment," Journal of Environmental Economics and Management, Elsevier, vol. 7(4), pages 321-333, December.
    12. Benchekroun, Hassan & van Long, Ngo, 1998. "Efficiency inducing taxation for polluting oligopolists," Journal of Public Economics, Elsevier, vol. 70(2), pages 325-342, November.
    13. Anna Nagurney & Kanwalroop Dhanda, 2000. "Noncompliant oligopolistic firms and marketable pollution permits: Statics and dynamics," Annals of Operations Research, Springer, vol. 95(1), pages 285-312, January.
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    15. George Halkos, 1996. "Incomplete information in the acid rain game," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(2), pages 129-148, June.
    16. Halkos, George E., 1993. "Sulphur abatement policy: Implications of cost differentials," Energy Policy, Elsevier, vol. 21(10), pages 1035-1043, October.
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    Cited by:

    1. George Halkos & George Papageorgiou, 2013. "Dynamic modeling of pulse fishing: A game theoretic approach," DEOS Working Papers 1324, Athens University of Economics and Business.

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    More about this item

    Keywords

    Oligopoly Game; non-linear demand; pollution abatement; reservation price;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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