EconPapers    
Economics at your fingertips  
 

An Evolutionary Approach to Pollution Control in Competitive Markets

Ratul Lahkar (ratul.lahkar@ashoka.edu.in) and Vinay Ramani (v.ramani2710@gmail.com)
Additional contact information
Vinay Ramani: Indian Institute of Management, Visakhapatnam

No 68, Working Papers from Ashoka University, Department of Economics

Abstract: We consider a large population of firms in a market environment. The firms are divided into a finite set of types, with each type being characterized by a distinct private cost function. Moreover, the firms generate an external cost like pollution in the production process. As a result, the Nash equilibrium outcome is not socially optimal. We propose an evolutionary implementation mechanism to achieve the socially optimal outcome. In contrast to the classical Pigouvian pricing and the VCG mechanism, evolutionarily implementation does not require the planner to know or elicit any private information from firms. Hence, it is informationally parsimonious. By imposing a tax equal to the current external damage being imposed by a firm, the planner can guide the evolution of the society towards the social optimum. The imposition of the tax generates a potential game whose potential function is the social welfare function of the model. Evolutionary dynamics converge to the maximizer of this function thereby evolutionarily implementing the social welfare maximizer.

Keywords: Potential; Games; Negative; Externality; Pigouvian; Tax; Evolutionary; Implementation; Dominant; Strategy; Implementation (search for similar items in EconPapers)
Pages: 26
Date: 2021-10-13
New Economics Papers: this item is included in nep-ene, nep-env, nep-evo and nep-gth
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://dp.ashoka.edu.in/ash/wpaper/paper68_0.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ash:wpaper:68

Access Statistics for this paper

More papers in Working Papers from Ashoka University, Department of Economics
Bibliographic data for series maintained by Ashoka University (eco.admin@ashoka.edu.in).

 
Page updated 2024-12-28
Handle: RePEc:ash:wpaper:68