Back to activities
Dynamic Games and Applications Seminar

The impacts of environmental policy on industrial allocation: a transboundary pollution dynamic game


Mar 28, 2024   11:00 AM — 12:00 PM

José R. Morales Universidad Complutense de Madrid, Spain

José A. Morales García

Presentation on YouTube.

This paper analyzes a dynamic game between two trading regions that face a transboundary pollution problem. We study how the distribution of firms and trade costs affect the optimal emission policy of governments and how this policy would alter the allocation of the industry. The underlying microeconomic behavior is framed within the Economic Geography literature, in particular within the Footloose Capital Model (FCM). The macroeconomic model that arises is a transboundary pollution linear-quadratic dynamic game. We find that if the damage of pollution is high (low), the region with the larger industrial share reduces (increases) its emissions per firm, and that the steady state pollution reaches a minimum (maximum) when firms are fully concentrated in one region. Additionally, the strategic decisions of governments give rise to a new agglomerative force, absent in the FCM, which could lead to industrial activity fully concentrating in a core region.

Georges Zaccour organizer


Online meeting
Montréal Québec

Associated organization

Research Axis

Research application