The analysis of regulatory policies considering the environment is better informed by considering profit-maximizing product design, as designs chosen play a central role in determining environmental impact.
Strategic (Nash) equilibria for a family of profit-maximizing automotive design firms is considered for three regulatory policies considered for the automotive industry: emissions taxes, Corporate Average Fuel Economy (CAFE), and technology quotas. We review a design problem formulation including regulatory policies and a method applied to compute strategic equilibrium designs in a preference-homogenous small car market. With a means to compute strategic equilibrium designs given regulatory policy decisions, policy decisions can be compared along the criteria of economic (Pareto) efficiency. This work exhibits challenges to traditional game-theoretic analyses, and presents open questions for the investigation of strategic dynamics applied to policy design considering available technology, the profit motive, and consumer preferences.
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