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

Fouad El Ouardighi, Konstantin Kogan, Giorgio Gnecco, Marcello Sanguineti

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

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 languageEnglish
Pages (from-to)235-249
Number of pages15
JournalGroup Decision and Negotiation
Volume27
Issue number2
DOIs
StatePublished - 1 Apr 2018

Bibliographical note

Publisher Copyright:
© 2017, Springer Science+Business Media B.V.

Keywords

  • Commitment-based strategies
  • Cooperative solution
  • Environmental absorption efficiency
  • Transboundary pollution

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