On a Strategic Model of Pollution Control
Ferrari G, Koch T (2017) Center for Mathematical Economics Working Papers; 586.
Bielefeld: Center for Mathematical Economics.
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| Veröffentlicht | Englisch
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Abstract / Bemerkung
This paper proposes a strategic model of pollution control. A firm, representative
of the productive sector of a country, aims at maximizing its profits by expanding its production.
Assuming that the output of production is proportional to the level of pollutants' emissions, the
firm increases the level of pollution. The government of the country aims at minimizing the social
costs due to the pollution, and introduces regulatory constraints on the emissions' level, which
then effectively cap the output of production. Supposing that the firm and the government face
both proportional and fixed costs in order to adopt their policies, we model the previous problem
as a stochastic impulse two-person nonzero-sum game. The state variable of the game is the level
of the output of production which evolves as a general linearly controlled one-dimensional Itô-diffusion. Following an educated guess, we first construct a pair of candidate equilibrium policies
and of corresponding equilibrium values, and we then provide a set of sufficient conditions under
which they indeed realize an equilibrium. Our results are complemented by a numerical study
when the (uncontrolled) output of production evolves as a geometric Brownian motion, and
the firm's operating prot and the government's running cost functions are of power type. An
analysis of the dependency of the equilibrium policies and values on the model parameters yields
interesting new behaviors that we explain as a consequence of the strategic interaction between
the firm and the government.
Stichworte
pollution;
stochastic impulse nonzero-sum game;
verication theorem;
diffusions
Erscheinungsjahr
2017
Serientitel
Center for Mathematical Economics Working Papers
Band
586
Seite(n)
26
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2930413
Zitieren
Ferrari G, Koch T. On a Strategic Model of Pollution Control . Center for Mathematical Economics Working Papers. Vol 586. Bielefeld: Center for Mathematical Economics; 2017.
Ferrari, G., & Koch, T. (2017). On a Strategic Model of Pollution Control (Center for Mathematical Economics Working Papers, 586). Bielefeld: Center for Mathematical Economics.
Ferrari, Giorgio, and Koch, Torben. 2017. On a Strategic Model of Pollution Control . Vol. 586. Center for Mathematical Economics Working Papers. Bielefeld: Center for Mathematical Economics.
Ferrari, G., and Koch, T. (2017). On a Strategic Model of Pollution Control . Center for Mathematical Economics Working Papers, 586, Bielefeld: Center for Mathematical Economics.
Ferrari, G., & Koch, T., 2017. On a Strategic Model of Pollution Control , Center for Mathematical Economics Working Papers, no.586, Bielefeld: Center for Mathematical Economics.
G. Ferrari and T. Koch, On a Strategic Model of Pollution Control , Center for Mathematical Economics Working Papers, vol. 586, Bielefeld: Center for Mathematical Economics, 2017.
Ferrari, G., Koch, T.: On a Strategic Model of Pollution Control . Center for Mathematical Economics Working Papers, 586. Center for Mathematical Economics, Bielefeld (2017).
Ferrari, Giorgio, and Koch, Torben. On a Strategic Model of Pollution Control . Bielefeld: Center for Mathematical Economics, 2017. Center for Mathematical Economics Working Papers. 586.
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