This paper investigates how current and future generations are affected by commitment-based Nash equilibrium environmental strategies when the environmental absorption efficiency is susceptible to switch from a pollution sink to a source. We formulate a two-player differential game model of transboundary pollution that includes the environmental absorption efficiency as a state variable that can be enhanced thanks to restoration efforts. Based on a logarithmic specification for the instantaneous revenue function, we characterize the cooperative solution and the commitment-based Nash equilibrium strategy, and examine their differences in terms of steady state and transient behavior. We notably show that a commitment-based Nash equilibrium strategy makes it possible to prevent a definitive switching of the environmental absorption efficiency from a pollution sink to a source but imposes greater economic sacrifices on current generations than on future generations. In comparison, the cooperative solution imposes greater sacrifices on current generations in terms of revenues but it imposes lower environmental costs on both current and future generations than commitment-based Nash equilibrium strategy.

Commitment-Based Equilibrium Environmental Strategies Under Time-Dependent Absorption Efficiency

Gnecco, Giorgio;Sanguineti, Marcello
2017

Abstract

This paper investigates how current and future generations are affected by commitment-based Nash equilibrium environmental strategies when the environmental absorption efficiency is susceptible to switch from a pollution sink to a source. We formulate a two-player differential game model of transboundary pollution that includes the environmental absorption efficiency as a state variable that can be enhanced thanks to restoration efforts. Based on a logarithmic specification for the instantaneous revenue function, we characterize the cooperative solution and the commitment-based Nash equilibrium strategy, and examine their differences in terms of steady state and transient behavior. We notably show that a commitment-based Nash equilibrium strategy makes it possible to prevent a definitive switching of the environmental absorption efficiency from a pollution sink to a source but imposes greater economic sacrifices on current generations than on future generations. In comparison, the cooperative solution imposes greater sacrifices on current generations in terms of revenues but it imposes lower environmental costs on both current and future generations than commitment-based Nash equilibrium strategy.
File in questo prodotto:
File Dimensione Formato  
GDN17.pdf

accesso chiuso

Tipologia: Documento in versione editoriale
Dimensione 439.15 kB
Formato Adobe PDF
439.15 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11567/883891
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 5
  • ???jsp.display-item.citation.isi??? 4
social impact