Guiomar Martín-Herrán – Full Professor, Departamento de Economía Aplicada, Universidad de Valladolid, Spain
Within a non-cooperative transboundary pollution dynamic game, we study the strategic impact of a region's investment in the adoption of a cleaner technology, as embodied by a reduction in the emission per output ratio, on the equilibrium outcomes and regions' welfare. The ratio of emissions to output is endogenous and is a decreasing function of the level of the stock of clean technology. Each region can invest in a clean technology in addition to its control of emissions. Clean technology is assumed to be public knowledge so that both regions benefit from the investment in clean technology of an individual region. Pollution damage is modelled as a strictly convex function in the pollution stock. We analyze the feedback equilibrium of the non-cooperative game between two regions played over an infinite horizon. The formulation of the transboundary pollution dynamic game does not fit any special structure of analytically tractable games such as linear-state or linear-quadratic differential games. We develop numerical methods to characterize the feedback equilibrium of the non-cooperative game between two regions. The equilibrium trajectories of the stock of pollution and stock of clean technology as well the regions' welfare are compared under different scenarios.
(jointly with Javier de Frutos and Paula M. López-Pérez).