Groupe d’études et de recherche en analyse des décisions

Exploitation of a productive asset in the presence of strategic behavior and pollution externalities

Baris Vardar HEC Montréal, Canada

This paper studies the behavior of an oligopoly that is composed of a finite number of firms, which compete in exploitation of a commonly accessible productive asset in the presence of pollution externalities. We consider a differential game with two state variables (asset stock and pollution stock), and provide a tractable characterization of the symmetric feedback Nash equilibrium which is globally asymptotically stable. The results show that the firm strategy takes three forms depending on the pair of state variables, and different choices of model parameters leads to contrasting outcomes in both short- and long-run equilibrium.

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