Design of efficient mechanisms for industrial pollution control

Alberto Álvarez-López (), Filipe Martins () and Alberto A. Pinto ()
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Alberto Álvarez-López: Department of Economic Theory and Mathematical Economics, Faculty of Economics and Business Administration, UNED
Filipe Martins: Universidade de Coimbra, CeBER, Faculdade de Economia
Alberto A. Pinto: LIAAD–INESC TEC, Departmento de Matemática, Faculdade de Ciências, Universidade do Porto

No 2026-07, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: This paper develops an efficient pollution control mechanism for industrial sectors using evolutionary game theory. We model the dynamic,bounded-rational interaction between regulatory governments and polluting firms as a continuous evolutionary game. We prove that by designing a structured, state-dependent fine, the government can predetermine and guarantee a uniform green level of emissions abatement across all heterogeneous firms. This mechanism dynamically coordinates localised supervision, scaling proportionally to each firm’s individual abatement costs. Methodologically, we operationalise this framework by introducing and analysing two distinct penalisation regimes: piecewise affine and piecewise quadratic fines. While the affine structure offers superior ease of practical implementation, we analytically demonstrate that the quadratic formulation maximises the system’s rate of convergence toward the stable equilibrium, driving firms with the highest abatement costs to the target green level at the fastest rate. These analytical insights offer highly actionable robust decision-making tools for environmental policy design within complex industrial operations.

Keywords: Evolutionary game theory; Incentive design; Environmental (search for similar items in EconPapers)
Pages: 43 pages
Date: 2026-09
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