A game-theoretic approach for pollution control initiatives

Abstract

There are numerous regional, national, and international efforts to establish mechanisms to curb pollution and emissions. In this paper, we mainly focus on emissions trading systems. Using a static Cournot oligopoly game, we investigate a multi-product multi-pollutant market in which several supply chains compete in a non-cooperative manner in their product markets. This study characterizes conditions under which an efficient solution procedure converges to the unique Nash equilibrium of the oligopoly. Meanwhile, its partners establish a cooperative triopoly game within each supply chain in a nonsuperadditive characteristic function form. Drawing on the cooperative game theory literature, we provide a closed-form solution for a rational distribution of joint rewards between the supply chain’s partners.