Reference : The Irreversible Pollution Game
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Business & economic sciences : Economic systems & public economics
The Irreversible Pollution Game
Boucekkine, Raouf []
Ruan, Weihua []
Zou, Benteng mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM) >]
[en] Differential game ; Asymmetric pollution cost ; Markov Perfect Equilibria ; Irreversible pollution ; Non-concave pollution decay
[en] We study a 2-country differential game with irreversible pollution. Irresability is of a hard type: above a certain threshold level of pollution, the self-cleaning capacity of Nature drops to zero. Accordingly, the game includes a non-concave feature, and we characterize both the cooperative and non-cooperative versions with this general non-LQ property. We deliver full analytical results for the existence of Markov Perfect Equilibria. We first demonstrate that when pollution costs are
equal across players (symmetry), irreversible pollution regimes are more frequently
reached than under cooperation. Second, we study the implications of asymmetry
in the pollution cost. We find far nontrivial results on the reachability of the irreversible regime. However, we unambiguously prove that, for the same total cost of pollution, provided the irreversible regime is reached in both the symmetric and asymmetric cases, long-term pollution is larger in the symmetric case, reflecting more intensive free-riding under symmetry.

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