Nahid Masoudi

A differential game of international pollution control with evolving environmental costs

We consider a two-player differential game of international emissions to represent the interactions between two groups of countries, namely, developed and developing countries. We adopt a broader-than-usual definition of environmental cost for developing countries to account for their evolving involvement in tackling environmental externalities. Cooperative and non-cooperative solutions are characterized and contrasted. We find that it may not be the best course of action to push developing countries to reduce their emissions in the short term, and that cooperation may not create enough dividend, also in the short term, to be implementable.

Emissions control policies under uncertainty and rational learning in a linear-state dynamic model

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 regulators beliefs toward more optimistic views will increase the emissions.

Resource Extraction under Heterogeneous Growth in Demand

We study the effect of heterogeneous growth in demand on resource extraction. Using the Great Fish War framework of Levhari and Mirman (1980), we show that heterogeneity in demand growth has a profound effect on both cooperative and non-cooperative (Cournot-Nash and Stackelberg) and cooperative solutions.