Noncompliant oligopolistic firms and marketable pollution permits: Statics and dynamics

Anna Nagurney () and Kanwalroop Dhanda

Annals of Operations Research, 2000, vol. 95, issue 1, 285-312

Abstract: In this paper, we consider the modeling, analysis, and computation of solutions to both static and dynamic models of multiproduct, multipollutant noncompliant oligopolistic firms who engage in a market for pollution permits. In the case of the static model, we utilize variational inequality theory for the formulation of the governing equilibrium conditions as well as the qualitative analysis of the equilibrium pattern, including sensitivity analysis. We then propose a dynamic model, using the theory of projected dynamical systems, whose set of stationary points coincides with the set of solutions to the variational inequality problem. We propose an algorithm, which is a discretization in time of the dynamic adjustment process, and provide convergence results using the stability analysis results that are also provided herein. Finally, we apply the algorithm to several numerical examples to compute the profit-maximized quantities of the oligopolistic firms' products and the quantities of emissions, along with the equilibrium allocation of licenses and their prices, as well as the possible noncompliant overflows and underflows. This is the first time that these methodologies have been utilized in conjunction to study a problem drawn from environmental policy modeling and analysis. Copyright Kluwer Academic Publishers 2000

Keywords: environmental policy; pollution permits; oligopolistic markets; noncompliance; variational inequalities; projected dynamical systems (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1018906225220

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