Coordinating carbon emissions via production quantities: A differential game approach

Gila E. Fruchter, Hussein Naseraldin

Research output: Contribution to journalArticlepeer-review

Abstract

Production emissions in the industrial sector are a major source of environmental pollution. In this paper, we explore how emission considerations are integrated with production decisions. We develop a dynamic model consisting of two firms located in the same industrial park, which satisfies exogenously given demands in separate markets. The two firms can build up or rundown stocks (full backlogging), both of which are costly. The emission cost depends on the total output of the two firms. We develop Nash equilibrium feedback strategies, where each firm decides on its output based on its inventory or the inventories of both. We also develop a social planning solution where decisions are centralized. We present the analytic results for the total profits in these settings. The results show the benefits of a decentralized approach over a centralized one, provided there is a mechanism for coordination. Finally, emission costs are compared for the various solution concepts.

Original languageEnglish
Article number15
Pages (from-to)1-16
Number of pages16
JournalGames
Volume12
Issue number1
DOIs
StatePublished - Mar 2021

Bibliographical note

Publisher Copyright:
© 2021 by the authors. Licensee MDPI, Basel, Switzerland.

Keywords

  • Centralized
  • Decentralized
  • Differential games
  • Emission
  • Industrial parks

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