a GERAD, HEC Montréal, Canada b ESG, Université du Québec à Montréal, Canada c Chair in Game Theory and Management, GERAD, HEC Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal (Québec), Canada H3T 2A7
Abstract:
We consider a two-player asymmetric differential game of pollution control. One player is non-vulnerable to pollution, or unwilling to consider damages when choosing her production policy in a non-cooperative game. We characterize the feedback-Nash equilibrium and the cooperative solution. We establish conditions under which the vulnerable player can buy the cooperation of the non-vulnerable player to control her emissions. We further use the Nash bargaining solution to allocate the total cooperative dividend between the two players and propose a time-consistent decomposition overtime of the total payoff.