Search

We first study the optimality of a committed policy mix of tax and subsidy to control pollution when firms are involved in abatement technology R&D that is subject to knowledge spillovers. Then a c...

PurposeWhile the commons problem and the issues related to the negative externalities of harvesting have been studied extensively, there remains a need to bridge these two streams of studies to comprehensively investigate the implications of the strategic interactions among resource harvesters in the presence of such negative externalities. This paper aims to fill this gap.Design/methodology/approachThe authors study a common-pool harvest problem when the extractive activities leave behind negative externalities which affect the resource growth rate and reduce the stock beyond the extracted levels. Markov perfect noncooperative and optimal solutions are presented under different scenarios regarding considerations of negative externalities into harvest decisions.FindingsResults of the study suggest that, in the presence of such externalities, all parties must scale down their extraction in accordance with their externalities. The resource can be preserved by implementation of such harvest rule. However, failure to incorporate the externalities exacerbates the commons problem and can even lead to exhaustion of the biomass even if countries manage to cooperate and coordinate their harvest. Suggesting that if such externalities are large enough – which empirical literature suggests they are – then recognition and consideration of these externalities in the harvest decisions is as crucial as cooperation.Originality/valueThis paper provides a framework that is capable of incorporating the negative externalities of harvest activities into a bioeconomic game theoretic model and thereby providing a more real-world representation of the state of the common-pool resource management. While, the authors extend a well-known simple model, the model of this research study has the capacity to explain the widespread incidences of resource collapses. Therefore, the important policy implication is that agents should rigorously work together to understand the extent of the negative externalities of their harvests on the resources.

We analyze a transboundary pollution control problem in a heterogeneous two-country differential game setting in which regulators care for the implications of environmental policies on the competitiveness. We characterize the noncooperative and the cooperative solutions, showing that under both scenarios, in the presence of competitiveness considerations, heterogeneous countries will generally set different carbon taxes. This suggests, while implementing a mitigation policy is necessary to combat climate change, a universally homogeneous policy may not be optimal. Moreover, when countries are symmetric, except for their degree of competitiveness concerns, under noncooperation introduction of such concerns lowers the abatement policies in both countries, however, the self-effect is stronger than the cross-effect. Nevertheless, under cooperation, an increase in country j’s competitiveness concerns leads to more stringent policies in country i, while, the self-effect could be either positive or negative. The latter result emphasizes the importance of cooperation to tackle pollution in the presence of competitiveness concerns.

We first study the optimality of a committed policy mix of tax and subsidy to control pollution when firms are involved in abatement technology R&D that is subject to knowledge spillovers. Then a comparison of tax and subsidy is provided when the policy mix is not available and the regulator can use only one single policy. Two different behavioral assumptions for the firms are examined: when firms are myopic, and when they are strategic, i.e., react to the policies strategically. The results suggest that given that policy mix is available a committed regulator can attain optimality if firms are myopic, but that, a strategic reaction from the firms may compromise the efficiency of the policy mix, but the exact impact of that depends on the production technology and the effectiveness of knowledge spillovers. But if the regulator commits to one single policy, then tax policy has advantages over subsidy. Besides, unlike the policy mix, the single policy is more effective in case of strategic firms rather than myopic ones and it is even possible to achieve optimality with a special tax policy.

We introduce learning in a dynamic game of international pollution, with ecological uncertainty. We characterize and compare the feedback non-cooperative emissions strategies of players when the players do not know the distribution of ecological uncertainty but they gain information (learn) about it. We then compare our learning model with the benchmark model of full information, where players know the distribution of ecological uncertainty. We find that uncertainty due to anticipative learning induces a decrease in total emissions, but not necessarily in individual emissions. Further, the effect of structural uncertainty on total and individual emissions depends on the beliefs distribution and bias. Moreover, we obtain that if a player’s beliefs change toward more optimistic views or if she feels that the situation is less risky, then she increases her emissions while others react to this change and decrease their emissions.

We compare the use of price-based policies or taxes, and quantity-based policies or quotas, for controlling emissions in a dynamic setup when the regulator faces two sources of uncertainty: (i) market-related uncertainty; and (ii) ecological uncertainty. We assume that the regulator is a rational Bayesian learner and the regulator and firms have asymmetric information. In our model the structure of Bayesian learning is general. Our results suggest that the expected level of emissions is the same under taxes and quotas. However, the comparison of the total benefits related to these policies suggests that taxes dominate quotas, that is, they provide a higher social welfare. Even though taxes have some benefits over quotas, neither learning nor ecological uncertainty affect the choice of policy, i.e., the only factor having such an impact is uncertainty in the instantaneous net emissions benefits (market-related uncertainty). Besides, the more volatile is this uncertainty, the more benefits of taxes over quotas. Ecological uncertainty leads to a difference between the emissions rule under the informed and the rational learning assumptions. However, the direction of this difference depends on the beliefs bias with regard to ecological uncertainty. We also find that a change in the regulator's beliefs toward more optimistic views will increase the emissions.

We study the impact of collective effort in R&D in adaptation technologies, and also spillover effects on formation and size of stable international environmental agreements (IEAs). Our results suggest that it is possible to have more than one size of stable IEA. We can achieve a superior equilibrium, i.e., the grand coalition, if countries manage to keep knowledge spillovers low and arrange a minimum ratification threshold. This threshold is defined endogenously. We also shed light on the effects of two-sided spillover on global welfare and the size of stable IEAs.