A Dynamic Multi-Objective Duopoly Game with Capital Accumulation and Pollution

Bertrand Crettez, Naila Hayek and Peter Kort
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Bertrand Crettez: Department of Economics, Université Panthéon-Assas, Paris II & CRED, EA 7321, 21 Rue Valette, 75005 Paris, France
Naila Hayek: Department of Economics, Université Panthéon-Assas, Paris II & CRED, EA 7321, 21 Rue Valette, 75005 Paris, France

Mathematics, 2021, vol. 9, issue 16, 1-34

Abstract: This paper studies a discrete-time dynamic duopoly game with homogenous goods. Both firms have to decide on investment where investment increases production capacity so that they are able to put a larger quantity on the market. The downside, however, is that a larger quantity raises pollution. The firms have multiple objectives in the sense that each one maximizes the discounted profit stream and appreciates a clean environment as well. We obtain some surprising results. First, where it is known from the continuous-time differential game literature that firms invest more under a feedback information structure compared to an open-loop one, we detect scenarios where the opposite holds. Second, in a feedback Nash equilibrium, capital stock is more sensitive to environmental appreciation than in the open-loop case.

Keywords: game theory; corporate environmentalism; dynamic multi-objective duopoly; open-loop equilibrium; feedback Nash equilibrium (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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