A STEADY-STATE SATISFACTORY SOLUTION TO AN ENVIRONMENTAL
GAME WITH PIECE-WISE DEFINED PAYOFFS

JACEK B. KRAWCZYK, ODILE POURTALLIER
and MABEL TIDBALL

Abstract:

We model a pollution accumulation process through a nonlinear, nondifferentiable state equation and also as dependent on an environmental levy. Then the payoff function to an economic agent is defined piece-wise. However, for a simple demand and cost structure, the combined payoff function of all agents is diagonally strictly concave. This implies that a steady-state Nash equilibrium is unique and can be controlled by the levy. We analytically compute a steady-state Nash equilibrium solution for the agents, and use a Decision Support Tool to determine a satisfactory solution for the interactions between the agents and a legislator responsible for the levy.