Extract

The economic theory of natural resources and the environment is characterized by an intensive use of dynamic analysis for intuitive reasons, as the time dimension is essential to our understanding of the impact of complex economic systems on the preservation of resources and species as well as on the quality of the environment and climate change. In this respect, the theory of oligopoly makes no exception. Indeed, the territory located at the interception between industrial organization and environmental and resource economics is an area in which the application of dynamic game theory has been very fertile over the last few decades. The large body of available research in this direction convincingly illustrates what dynamic game theory can do to refine our understanding of such a complex and crucial matter, in terms of positive as well as normative analysis. The aim of this chapter is to offer a comprehensive overview of the resulting literature based on differential games (that is, dynamic games in continuous time), whose general focus is on the interplay between either regulated or unregulated oligopolistic firms’ profit incentives and the preservation of the stock of natural capital.