Buying Cooperation in an Asymmetric Environmental Differential Game

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We consider a two-player asymmetric differential game of pollution control. One player is non-vulnerable to pollution, or unwilling to consider damages when choosing her production policy in a non-cooperative game. We characterize the feedback-Nash equilibrium and the cooperative solution. We establish conditions under which the vulnerable player can buy the cooperation of the non-vulnerable player to control her emissions and invest in abatement activities. We further use the Nash bargaining solution to allocate the total cooperative dividend between the two players and propose a time-consistent decomposition overtime of the total payoff.

, 20 pages

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Buying cooperation in an asymmetric environmental differential game
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Journal of Economic Dynamics and Control, 35, 935–946, 2011 BibTeX reference