A differential game of industrial pollution management (Q684779)

A mathematical model of industrial pollution management is formulated in a differential game theoretical framework. The dynamics of the level of pollution is described by a differential equation governed by two decision makers, an entrepreneur and the government. The profit maximizing entrepreneur selects an output level. The government attempts to maximize utility from consumption and simultaneously to minimize disutility from pollution by charging a pollution tax rate on output. A feedback Nash equilibrium is derived. The relationship between the equilibrium strategies and model parameters are examined. The results are developed for an infinite horizon and extended to the multiple firms case.