We characterize the shape of spatial externalities in a continuous time and space differential game with transboundary pollution. We posit a realistic spatiotemporal law of motion for pollution (diffusion and advection), and tackle spatiotemporal non-cooperative (and cooperative) differential games. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is infinite. We allow for a rich set of geographic heterogeneities across states. We solve analytically the induced non-cooperative differential game and characterize its long-term spatial distributions. In particular, we prove that there exist a Perfect Markov Equilibrium, unique among the class of the affine feedbacks. We further provide with a full exploration of the free riding problem and the associated border effect.

Boucekkine R., Fabbri G., Federico S., Gozzi F. (2022). A dynamic theory of spatial externalities. GAMES AND ECONOMIC BEHAVIOR, 132, 133-165 [10.1016/j.geb.2021.12.002].

A dynamic theory of spatial externalities

Federico S.;
2022

Abstract

We characterize the shape of spatial externalities in a continuous time and space differential game with transboundary pollution. We posit a realistic spatiotemporal law of motion for pollution (diffusion and advection), and tackle spatiotemporal non-cooperative (and cooperative) differential games. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is infinite. We allow for a rich set of geographic heterogeneities across states. We solve analytically the induced non-cooperative differential game and characterize its long-term spatial distributions. In particular, we prove that there exist a Perfect Markov Equilibrium, unique among the class of the affine feedbacks. We further provide with a full exploration of the free riding problem and the associated border effect.
2022
Boucekkine R., Fabbri G., Federico S., Gozzi F. (2022). A dynamic theory of spatial externalities. GAMES AND ECONOMIC BEHAVIOR, 132, 133-165 [10.1016/j.geb.2021.12.002].
Boucekkine R.; Fabbri G.; Federico S.; Gozzi F.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/944375
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