A dynamic game of environmental exploitation between two countries with sequential maximin objectives

Ngo Long

International Journal of Development and Conflict, 2011, vol. 1, issue 3, 419-433

Abstract: This paper formulates a dynamic game between the governments of two countries that share a common stock of natural capital (such as environmental quality). The objective of each government is to find a sustainable utility path that satisfies the sequential maximin property. A utility path is a sequential maximin if it survives all successive rounds of eliminating Pareto inferior outcomes based on the maximin criterion. It is shown that, under the sequential maximin objective, there exists a Markov perfect Nash equilibrium in which utility is constant over time. This equilibrium turns out to be Pareto efficient, in sharp contrast to the typical inefficiency of Markov perfect Nash equilibria under the usual discounted utilitarian objective. We also find a Stackelberg equilibrium that results in sustainable development, in which the welfare of the leader is lower (and that of the passive follower is higher) than the symmetric welfare level in the Nash equilibrium.

Keywords: Dynamic game; sustainable development; maximin (search for similar items in EconPapers)
Date: 2011
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