The Short-Term And Long-Term Trade-Offs Of Sustainable Entrepreneurship
We use game theory concepts and tools to model the technology choices of firms that face a trade-off between the short-term profits from “dirty” technologies and the long-term benefits of a clean environment. When the nominal costs from adopting environmentally friendly technologies are “high enough,” then choosing “dirty” technologies is a dominant strategy. However, when firms’ objectives change due to taxes, subsidies, or demand shifts, the optimal strategies of firms can lead to a socially desirable sustainable equilibrium. A simple version of the model is adapted into a classroom activity that allows students to discover the main results of the model via simulations of corporate decision making.
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