Carbon Taxes and Comparison of Trading Regimes in Fossil Fuels

Seiichi Katayama (), Ngo Long and Hiroshi Ohta ()
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Seiichi Katayama: Aichi Gakuin University
Hiroshi Ohta: Kobe University

A chapter in Dynamic Optimization in Environmental Economics, 2014, pp 287-313 from Springer

Abstract: Abstract We study a dynamic game involving a fossil fuel exporting cartel and a coalition of importing countries that imposes carbon taxes. We show that there exists a unique Nash equilibrium, where all countries use feedback strategies. We also obtain two Stackelberg equilibria, one where the exporting cartel is the leader, and one where the coalition of importing countries is the leader. Not surprisingly, the world welfare under the Nash equilibrium is lower than that under the social planning, even though both solutions have the same steady state. Comparison of the Stackelberg equilibria with the Nash equilibrium is performed numerically. All our numerical examples reveal that world welfare under the Nash equilibrium is higher than that under the Stackelberg game where the exporting cartel is the leader. The worst outcome for world welfare occurs when the importing coalition is the Stackelberg leader.

Keywords: Nash Equilibrium; First Order Condition; Social Planner; Benchmark Scenario; Stackelberg Equilibrium (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/978-3-642-54086-8_13

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