A Dynamic Multi-Objective Duopoly Game with Environmentally Concerned Firms

Bertrand Crettez () and Naila Hayek ()
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Bertrand Crettez: CRED, EA 7321, Université Panthéon-Assas, Paris II, 21 Rue Valette, 75005 Paris, France
Naila Hayek: CRED, EA 7321, Université Panthéon-Assas, Paris II, 21 Rue Valette, 75005 Paris, France

International Game Theory Review (IGTR), 2022, vol. 24, issue 01, 1-26

Abstract: Social pressures, in addition to the law, incite more and more firms to pursue multiple and separate objectives. This trend raises the following question: will the change in the number of objectives pursued by firms affect their strategic interactions? To address this issue we focus on a dynamic duopoly where each firm has two objectives: one of the firms’ objectives is financial and the other is environmental. Production is a polluting activity and the actual level of pollution depends on current and past emissions. We analyze both open-loop Nash and cooperative equilibria (these equilibria are also trivially feedback as the equilibrium strategies are constant). We show that contrary to the case where firms’ unique objective is the financial one, there are Nash equilibria where production is lower than in the cooperative equilibrium. This stems from the fact that in a Nash equilibrium firms do not coordinate the choice of the relative weight given to the environmental objective. We obtain the same conclusion when firms can mitigate pollution. In this case, we also show that there are Nash equilibria where the sum of the firms’ mitigation efforts is higher than its value in the cooperative equilibrium.

Keywords: Corporate environmentalism; duopoly; dynamic multi-objective game; pollution abatement (search for similar items in EconPapers)
JEL-codes: C73 D21 D43 D62 H23 L13 L21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219198921500080

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