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Innovation and Natural Resources: A Dynamic Game with Uncertainty

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  • Christopher Harris
  • John Vickers

Abstract

We analyze a dynamic game between a resource-exporting country and an importing country that is seeking to invent a substitute technology. The time of innovation is an uncertain function of the importer's R&D efforts, which cannot be committed in advance. The game has a unique equilibrium in Markov strategies. The importer's R&D efforts grow over time. The exporter's output often decreases with time before innovation occurs, but strategic factors imply that the opposite can happen. The output path is characterized by a simple modification of Hotelling's rule to account for uncertainty and strategic behavior.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 26 (1995)
Issue (Month): 3 (Autumn)
Pages: 418-430

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Handle: RePEc:rje:randje:v:26:y:1995:i:autumn:p:418-430

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Cited by:
  1. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2010. "Would Hotelling Kill the Electric Car?," TSE Working Papers 09-149, Toulouse School of Economics (TSE).
  2. Luca Lambertini, 2014. "Exploration For Nonrenewable Resources In A Dynamic Oligopoly: An Arrovian Result," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1440011-1-1.
  3. Michielsen, Thomas O., 2014. "Strategic resource extraction and substitute development," Resource and Energy Economics, Elsevier, vol. 36(2), pages 455-468.
  4. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.
  5. Gerlagh, Reyer & Liski, Matti, 2011. "Strategic resource dependence," Journal of Economic Theory, Elsevier, vol. 146(2), pages 699-727, March.

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