Pollution Abatement and Lobbying in a Cournot Game: An Agent-Based Modelling Approach

Abstract

AbstractThe application of Agent-Based Modelling to Game Theory allows us to benefit from the strengths of both approaches, and to enrich the study of games when solutions are difficult to elicit analytically. Using an agent-based approach to sequential games, however, poses some issues that result in a few applications of this type. We contribute to this aspect by applying the agent-based approach to a lobbying game involving environmental regulation and firms’ choice of abatement. We simulate this game and test the robustness of its game-theoretical prediction against the results obtained. We find that while theoretical predictions are generally consistent with the simulated results, this novel approach highlights a few differences. First, the market converges to a green state for a larger number of cases with respect to theoretical predictions. Second, simulations show that it is possible for this market to converge to a polluting state in the very long run. This result is not envisaged by theoretical predictions. Sensitivity experiments on the main model parameters confirm the robustness of our findings.