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A dynamic theory of spatial externalities

Raouf Boucekkine (), Giorgio Fabbri (), Salvatore Federico and Fausto Gozzi

Games and Economic Behavior, 2022, vol. 132, issue C, 133-165

Abstract: We characterize the shape of spatial externalities in a continuous time and space differential game with transboundary pollution. We posit a realistic spatiotemporal law of motion for pollution (diffusion and advection), and tackle spatiotemporal non-cooperative (and cooperative) differential games. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is infinite. We allow for a rich set of geographic heterogeneities across states. We solve analytically the induced non-cooperative differential game and characterize its long-term spatial distributions. In particular, we prove that there exist a Perfect Markov Equilibrium, unique among the class of the affine feedbacks. We further provide with a full exploration of the free riding problem and the associated border effect.

Keywords: Spatial externalities; Spatial diffusion; Differential games in continuous time and space; Infinite dimensional optimal control problems; Environmental federalism (search for similar items in EconPapers)
JEL-codes: C61 C72 O13 O44 Q53 R12 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: A dynamic theory of spatial externalities (2022)
Working Paper: A dynamic theory of spatial externalities (2021) Downloads
Working Paper: A Dynamic Theory Of Spatial Externalities (2021) Downloads
Working Paper: A dynamic theory of spatial externalities (2021) Downloads
Working Paper: A dynamic theory of spatial externalities (2020) Downloads
Working Paper: A Dynamic Theory Of Spatial Externalities (2020) Downloads
Working Paper: A dynamic theory of spatial externalities (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:132:y:2022:i:c:p:133-165

DOI: 10.1016/j.geb.2021.12.002

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