IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-04388643.html
   My bibliography  Save this paper

The Risk of War: An Analysis Combining Real Options and Games

Author

Listed:
  • Laurent Gauthier

    (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis, CAC-IXXI, Complex Systems Institute)

Abstract

Real options have been used to evaluate investment decisions with various structures, but have rarely been put into a game theoretical context. We examine the risk of war over a common resource, whose value is a geometric Brownian Motion, where one country may preemptively appropriate the resource, and the other wage war for it. We derive a closed form expression for the optimal mixed strategy that both countries should follow, and show that the resulting price level that triggers capturing the resource and subsequent war asymptotically follows a power law. The present value of the time until that trigger also decays slowly asymptotically. In consequence, in spite of both countries' propensity towards preemption, war may be indefinitely delayed.

Suggested Citation

  • Laurent Gauthier, 2023. "The Risk of War: An Analysis Combining Real Options and Games," Working Papers hal-04388643, HAL.
    • Handle: RePEc:hal:wpaper:hal-04388643
    Note: View the original document on HAL open archive server: https://univ-paris8.hal.science/hal-04388643
    as

    Download full text from publisher

    File URL: https://univ-paris8.hal.science/hal-04388643/document
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-04388643. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.