differential games

A dynamic game with feedback strategies for internalizing externalities. Economic Analysis and Policy DOI: 10.1016/j.eap.2017.05.005

In this paper we consider a dynamic nonzero-sum game between the polluting firms and the authorities. Although the proposed game is not easily solvable for the feedback case, i.e., it is not the linear quadratic case of game neither the degenerated game case, we calculate explicitly a stationary feedback equilibrium. In the proposed game the regulator has the ability to turn the optimal allocation of their efforts between pollution abatement and taxation of the polluting firms.