Environmental and Resource Economics

, Volume 65, Issue 1, pp 135–158 | Cite as

Dynamic Climate Policy with Both Strategic and Non-strategic Agents: Taxes Versus Quantities

  • Larry Karp
  • Sauleh Siddiqui
  • Jon Strand


We study a dynamic game where blocs of fossil fuel importers and exporters exercise market power using taxes or quotas. A non-strategic fringe of emerging and developing countries consume and produce fossil fuels. Cumulated emissions from fossil fuel consumption create climate damages. We examine Markov perfect equilibria under the four combinations of trade policies, and compare these to the corresponding static games. Taxes dominate quotas for both the strategic importer and exporter; the fringe is better off under taxes than quotas, because taxes result in lower fuel prices and less consumption by the strategic importer, lowering climate damages.


Dynamic game Fossil fuel markets Market power  Climate damages Nonstrategic fringe 

JEL Classification

C63 C73 Q41 Q54 


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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Department of Agricultural and Resource EconomicsUniversity of CaliforniaBerkeleyUSA
  2. 2.Ragnar Frisch Center for Economic ResearchOsloNorway
  3. 3.Department of Civil Engineering, The Johns Hopkins Systems InstituteJohns Hopkins UniversityBaltimoreUSA
  4. 4.Development Research Group, Environment and Energy TeamThe World BankWashingtonUSA

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