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.
Original language | English |
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Pages (from-to) | 235-249 |
Number of pages | 15 |
Journal | Group Decision and Negotiation |
Volume | 27 |
Issue number | 2 |
DOIs | |
State | Published - 1 Apr 2018 |
Bibliographical note
Publisher Copyright:© 2017, Springer Science+Business Media B.V.
Funding
Acknowledgements This research was financially supported by ESSEC Business School Research Centre (France). Giorgio Gnecco and Marcello Sanguineti are members of GNAMPA-INdAM (Gruppo Nazionale per l’Analisi Matematica, la Probabilità e le loro Applicazioni - Instituto Nazionale di Alta Matematica). The authors acknowledge helpful comments by an Associate Editor and two anonymous reviewers. The usual disclaimer applies.
Funders | Funder number |
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ESSEC Business School Research Centre |
Keywords
- Commitment-based strategies
- Cooperative solution
- Environmental absorption efficiency
- Transboundary pollution