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A dynamic theory of spatial externalities

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

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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.

Date: 2021-12
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-ure
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http://arxiv.org/pdf/2112.10584 Latest version (application/pdf)

Related works:
Journal Article: A dynamic theory of spatial externalities (2022) Downloads
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 (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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