TY  - GEN
AB  - This paper proposes a strategic model of pollution control. A firm, representative
of the productive sector of a country, aims at maximizing its profits by expanding its production.
Assuming that the output of production is proportional to the level of pollutants' emissions, the
firm increases the level of pollution. The government of the country aims at minimizing the social
costs due to the pollution, and introduces regulatory constraints on the emissions' level, which
then effectively cap the output of production. Supposing that the firm and the government face
both proportional and fixed costs in order to adopt their policies, we model the previous problem
as a stochastic impulse two-person nonzero-sum game. The state variable of the game is the level
of the output of production which evolves as a general linearly controlled one-dimensional Itô-diffusion. Following an educated guess, we first construct a pair of candidate equilibrium policies
and of corresponding equilibrium values, and we then provide a set of sufficient conditions under
which they indeed realize an equilibrium. Our results are complemented by a numerical study
when the (uncontrolled) output of production evolves as a geometric Brownian motion, and
the firm's operating prot and the government's running cost functions are of power type. An
analysis of the dependency of the equilibrium policies and values on the model parameters yields
interesting new behaviors that we explain as a consequence of the strategic interaction between
the firm and the government.
DA  - 2017
KW  - pollution
KW  - stochastic impulse nonzero-sum game
KW  - verication theorem
KW  - diffusions
LA  - eng
PY  - 2017
SN  - 0931-6558
SP  - 26-
TI  - On a Strategic Model of Pollution Control
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29304132
Y2  - 2024-11-22T01:18:07
ER  -