The purpose of the present study is to determine under which conditions economic agents would agree to pay the extra cost of devices that prevent polluting the environment, such as catalytic converters for cars. We depart from the conventional view of one perfect rational decider with full information, able to evaluate the cost of pollution and to impose the rational choice on all agents. In real life, agents have incomplete information and they decide in function of their own interests. Choices then depend on available information, readiness to cooperate to avoid pollution and possibly government intervention. We will concentrate in this paper on the role of information in controlling the dynamics of individual choices and suppose that the agents decide egoistically without government intervention (although generalizations of the model including some kind of government intervention are immediate). This approximation is not unrealistic, since in real life agents only take cooperative decisions, including compliance to government decisions, if these decisions are not against their long term interests.
The role of information exchange and imitation processes in economy has already been described by Myerson [1], Sharfstein and Stein [2], Blume [3], Banerjee [4], Kirman [5,6] and Ellison [7]. The sudies on cooperation are often based on the iterated prisoner's dilemma, Lindgren [8] and Nowak and Sigmund [9], or on cost-benefit analysis, Glance and Huberman [10,11].
A simple example that we use throughout the discussion is that of two brands of otherwise equivalent cars, except for the fact that one brand is polluting and the other one is non-polluting thanks to it catalytic converter. The a priori utility of the non-polluting car is lower than that of the polluting car, because of the cost of the catalytic converter. If the agents were fully rational ( e.g. if they were fully informed) and cooperative (no cheaters), they would agree to pay for the converter a price equivalent to the cost of pollution generated by each polluting car. We propose here a model based on bounded rationality which shows that agents only agree to pay a fraction of the cost of pollution. In this model, derived from Arthur and Lane [12], agents compute the utilities of both brands according to their a priori expectations, the opinion of their neighbors about the brand they have chosen, their risk aversion, and the cost of local pollution. The model supposes no government intervention, except perhaps, a tax on polluting cars, and that the agents have no global view of the real cost of pollution. They simply experience the decrease in utility of the brands due to present local pollution.
Due to the locality of information exchange and the diffusion of pollution, agent opinions depend on time and space. The model takes into account several coupled dynamics: those of pollution, of agent internal representations and of their choices. We are ultimately interested in the time evolution of the market shares of polluting and non polluting cars, and how it depends on the parameters governing the economic variables, pollution diffusion and especially the dynamics of the internal representation of the agents.