Economics Research Institute Study Paper
Utah State University Department of Economics
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This paper continues a line of research begun in Batabyal ("Consistency and Optimality in a Dynamic Game of Pollution Control I: Competition," ERI Study Paper #95-29). I model the interaction between a regulator and a monopolistic, polluting firm as a Stackelberg differential game in which the regulator leads. The firm creates pollution, which results in a stock externality. I analyze the intertemporal effects of alternative pollution control measures. The principal issue here concerns the dynamic inconsistency of the optimal solution. Inter alia, I compare the steady state levels of pollution under optimal and under dynamically consistent policies.
Batabyal, Amitrajeet A., "Consistency and Optimality in a Dynamic Game of Pollution Control II: Monopoly" (1996). Economic Research Institute Study Papers. Paper 70.