Global warming: Prices versus quantities from a strategic point of view

Global warming: Prices versus quantities from a strategic point of view / Franz Wirl,  Journal of Environmental Economics and Management, Available online 7 December 2011

http://www.sciencedirect.com/science/article/pii/S0095069611001562

This paper investigates how the choices of the instruments affects the interactions in a stock externality game (global warming) between cartelized fossil fuel suppliers and consumers. More precisely, the paper studies the equilibria in Markov strategies in a dynamic game with each player choosing either the quantity or the price strategy including short-run first mover advantages. Indeed OPEC and its opponent IEA have tried both instruments in the past and play currently in quantities. Given such a non-competitive setting, both players should prefer the price instrument. Therefore, both players are expected to switch back to price and tax policies if global warming will be treated effectively. (© the author)


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