The Effect of Uncertainty on Pollution Control Policy

Stergios Athanassoglou
Authors registered in the RePEc Author Service: Stergios Athanasoglou

MPRA Paper from University Library of Munich, Germany

Abstract: I study a class of differential games of pollution control with profit functions that are polynomial in the global pollution stock. Given an emissions path satisfying mild regularity conditions, a simple polynomial ambient transfer scheme is exhibited that induces it in Markov-perfect equilibrium (MPE). Proposed transfers are a polynomial function of the difference between actual and desired pollution levels; moreover, they are designed so that in MPE no tax or subsidy is ever levied. Their applicability under stochastic pollution dynamics is studied for a symmetric game of polluting oligopolists with linear demand. I discuss a quadratic scheme that induces agents to adopt Markovian emissions strategies that are stationary and linear-decreasing in total pollution. Total expected ambient transfers are always non-positive and increase linearly in volatility and the absolute value of the slope of the inverse demand function. However, if the regulator is interested in inducing a constant emissions strategy then, in expectation, transfers vanish.

Keywords: differential games; stochastic dynamics; nonpoint source pollution; policy design (search for similar items in EconPapers)
JEL-codes: C73 H21 H23 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-ene and nep-env
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https://mpra.ub.uni-muenchen.de/24350/2/MPRA_paper_24350.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/26329/1/MPRA_paper_26329.pdf revised version (application/pdf)

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