Hassan Benchekroun

On the multiplicity of efficiency-inducing tax rules

Abstract We derive corrective tax rules for a monopoly whose production processes generate emissions that add to a stock of pollution which evolves over time. In our model, the monopolist maximizes the discounted sum of its instantaneous profits, and the government designs a tax rule that corrects for both the externalities associated with pollution and the market power of the monopolist. We show that there exists a continuum of time-independent tax rules that guide the monopolist to achieve the socially optimum production path.

Transboundary Fishery: A Differential Game Model

We consider a differential game between two players, where one player has the first-mover advantage. We compare the equilibrium of this model with the one generated by a conventional symmetric model. The existence of a first mover results in more conservationist exploitation in the aggregate. We also consider the implication of departures from the equilibrium. If the leader can commit to decrease its fishing effort over a finite interval of time, then the follower may respond by increasing, or decreasing, its catch rate, depending on the length of the commitment period. Copyright 2002 by The London School of Economics and Political Science

Comparative dynamics in a productive asset oligopoly

Abstract We build a subgame perfect Nash equilibrium of a common property productive asset oligopoly and analyze separately the impact of a change in the implicit growth rate of the asset and a change in the number of firms exploiting the asset. We show that the steady state level of asset can be a decreasing function of the assets implicit growth rate. This phenomenon arises when the initial stock of asset is below a certain threshold. In the short-run we show that firms’ exploitation rate can be a decreasing function of the implicit growth rate. We study the impact of a change in the number of firms that share access to the asset. Reducing the number of firms can result, in the long-run, in higher industry production. In the short-run, it can result in an increase of the industrys exploitation and a decrease of the level of the assets stock.

Controlling pollution and environmental absorption capacity

This pollution accumulation model shows that the environmental absorption capacity is impacted by economic activity. The resulting optimal control problem has two inter-related state variables: the stock of pollution and the absorption capacity of the environment. The stock of pollution decreases with environmental absorption capacity and increases with the rate of current emissions, which is controlled by a production level as well as an emissions reduction effort. However, the environmental absorption capacity is positively affected by an absorption development effort, and negatively impacted by the stock of pollution. Under specific conditions, it is shown that an optimal path, which can be either monotonic or following transient oscillations, leads to a (nontrivial) saddle-point characterized by a positive environmental absorption capacity.

COLLABORATIVE ENVIRONMENTAL MANAGEMENT: A REVIEW OF THE LITERATURE

This paper reviews the game-theoretic literature on collaborative environmental management. It begins with a survey of static models of international environmental agreements (IEAs), comparing their underlying assumptions and their results. Extensions of the basic model to allow for both adaptation and mitigation, and for transfer payments are considered. We review the various concepts of coalitional stability, such as internal and external stability and far-sighted stability in the noncooperative strand, and the gamma core concept in the cooperative strand. The network approach to cooperation building is reviewed. We next survey extensions of IEA theory to dynamic models with stock pollutants, allowing membership status to change over time. Finally, dynamic cooperative games of pollution with transfer payments that take place over time are discussed.

Trade Liberalization and the Profitability of Mergers: a Global Analysis*

We analyze the effects of bilateral tariff reductions on the profitability of cost-reducing horizontal mergers. Given Cournot competition in a two-country world, for any positive tariff below a certain threshold, marginal trade liberalization is shown to encourage only those domestic mergers with sufficiently large cost-savings and to discourage the rest. For tariffs close to, but smaller than, the prohibitive tariff, however, marginal trade liberalization necessarily encourages all domestic mergers. Moreover, we show that for a given level of cost-savings, the impact of marginal trade liberalization may not reliably predict that of nonmarginal liberalization. Although at high tariffs, domestic mergers are shown to be unambiguously more profitable than cross-border mergers, near free trade, mergers which yield the most cost-savings become the most profitable. Thus, when comparing domestic and cross-border mergers, trade liberalization encourages the type which yields the most cost-savings. Copyright

On the profitability of production perturbations in a dynamic natural resource oligopoly

Abstract Static oligopoly analysis predicts that if a single firm in Cournot equilibrium were to be forced to marginally contract its production, its profits would fall. On the other hand, if all the firms were simultaneously forced to reduce their production, thus moving the industry towards monopoly output, each firms profit would rise. We show that these very intuitive results may not hold in a dynamic oligopoly, such as a nonrenewable natural resource oligopoly, where the exogenous constraint would take the form of a contraction of the firms output path over some fixed interval of time: there are situations where a firm will gain from being the lone firm constrained in this way and cases where each firm will lose if all the firms in the industry are so constrained, thus exactly reversing the conclusions obtained from purely static analysis.

The impact of foresight in a transboundary pollution game

We study the impact of foresight in a transboundary pollution game; i.e. the ability of a country to control its emissions taking into account the relationship between current emissions and future levels of pollution and thus on future damages. We show that when all countries are myopic, i.e., choose the ‘laisser-faire’ policy, their payoffs are smaller than when all countries are farsighted, i.e., non-myopic. However, in the case where one myopic country becomes farsighted we show that the welfare impact of foresight on that country is ambiguous. Foresight may be welfare reducing for the country that acquires it. This is due to the reaction of the other farsighted countries to that country’s acquisition of foresight. The country that acquires foresight reduces its emissions while the other farsighted countries extend their emissions. The overall impact on total emissions is ambiguous. Moreover, our results suggest that incentive mechanisms, that involve a very small (possibly zero) present value of transfers, can play an important role in inducing a country to adopt a farsighted behavior and diminishing the number of myopic countries. These incentives would compensate the myopic country for the short-run losses incurred from the acquisition of foresight and can be reimbursed by that country from the gains from foresight that it enjoys in the long run.

Adaptation and the Allocation of Pollution Reduction Costs

We consider a game of abatement of a transboundary pollutant. We use a time-consistent Shapley value allocation of the cost of pollution reduction, and study the sensitivity of such an allocation to countries’ adaptation to pollution. A country’s adaptation to pollution is captured by a change in its damage function. We show that if there is a reduction in the damage cost of one country only, this can harm the other countries. Some countries may end up worse off even in the case where all countries experience a uniform decrease in their damage from pollution. An important policy implication of our analysis is that the Shapley value approach to the allocation of abatement costs does not necessarily provide the right incentives for all players to act on reducing pollution damage. We determine conditions under which a uniform fall in all countries’ pollution damage benefits all countries.

Adaptation Effectiveness and Free-Riding Incentives in International Environmental Agreements

While an international agreement over the reduction of greenhouse gases (GHGs) emissions proves to be elusive, there is a large and growing support for investment in developing more effective technologies to adapt to climate change. We show that an increase in effectiveness of adaptation will diminish the incentive of individual countries to free-ride on a global agreement over emissions. Moreover, we show that this positive effect of an increase in adaptations effectiveness can also be accompanied by an increase in the gains from global cooperation over GHGs emissions.