Prevention of stock accumulation by restricting polluters’ resources

Halkos, George (2011): Prevention of stock accumulation by restricting polluters’ resources.

Abstract

In this paper we claim that the disadvantage in the pollution control is not primarily the accumulated stock of pollutants, which is an accomplished fact, but the use of the available inputs in production in conjunction with the available equipment are the sources of pollutants accumulation. In most cases pollution is an irreversible fact and consequently, the main concern of a social planer should be the discovery of effective ways to reduce the sources (inputs and equipment) that generate pollutants. Using both optimal control and differential game approaches, we study the intertemporal strategic interactions between polluters and the social planer. We find that the establishment of cyclical strategies in a polluter’s optimal control problem requires that the polluter’s discount rate must be greater than the marginal resources’ growth. For the saddle point stability, the marginal resources growth has to be equal or less than zero. Assuming constant elasticity for the polluters’ resources reduction function and linearity for the rest of the functions, we find that the pollution game yields constant optimal Nash strategies. Finally, we provide analytical expressions of these strategies as well as the steady state value of the resources’ stock.

• Item Type: MPRA Paper
• Language: English
• Keywords: Pollution control; optimal control; differential games; Nash equilibrium
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium

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