Due to concern for the state of the environment, the federal government passed laws forcing industry to accomodate the wishes of environmentalists. In particular the Clean Air Standards Act imposed a measure of air pollution and dictated an upper bound on the amount of allowable air pollution in terms of this standard. This paper attempts to investigate the impact of such a law in the context of a two firm world. In the model each firm produces output and pollution so as to maximize profit. The pollution of all firms together is the variable which comes under constraint of the law. The model of this economy turns out to be a non-zero sum two firm differential game, and the solution (Nash equilibrium) can be characterized. To obtain more concrete results with respect to the impact of the law on the firms' output and hiring of inputs, a simulation of the model is attempted.

Meeting Name

3rd Annual UMR-MEC Conference on Energy (1976: Oct. 12-14, Rolla, MO)

Document Type

Article - Conference proceedings


Energy and the Environment

Document Version

Final Version

File Type





© 1977 University of Missouri--Rolla, All rights reserved.

Publication Date

12 Oct 1976