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Extraction of non-renewable resources: a differential game approach

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  • Halkos, George
  • Papageorgiou, George

Abstract

Exploitation of non–renewable resources is an intensively studied field of environmental economics in the last century. Since the influential Hotelling’s paper a huge progress is made in the depletable resources literature. Although a variety of methodologies is used in that problem’s solutions a basic question of time inconsistency arises in the solution process. We show the sources of dynamical time inconsistency in a leader – follower game for which the buyer leads while the extractor follows and the players employ open loop strategies. Also we make use of Markovian informational structure, in a non – renewable resource Nash game, in order to extract strategies that are time consistent. Finally we enlarge the utility function space from the logarithmic utility to the utility functions that exhibits relative risk aversion with the same, with respect to time consistency, strategies.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37596.

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Date of creation: 2008
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Publication status: Published in Archieves of Economic History XXI.1(2008): pp. 5-22
Handle: RePEc:pra:mprapa:37596

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Related research

Keywords: Non-renewable resources; time consistency; Markovian strategies; leader-follower;

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References

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  1. Lewis, Tracy R & Matthews, Steven A & Burness, H Stuart, 1979. "Monopoly and the Rate of Extraction of Exhaustible Resources: Note," American Economic Review, American Economic Association, vol. 69(1), pages 227-30, March.
  2. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September.
  3. Engelbert J. Dockner & Florian O.O. Wagener, 2006. "Markov-Perfect Nash Equilibria in Models with a Single Capital Stock," Tinbergen Institute Discussion Papers 06-055/1, Tinbergen Institute.
  4. A. M. Ulph & G. M. Folie, 1980. "Exhaustible Resources and Cartels: An Intertemporal Nash-Cournot Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(4), pages 645-58, November.
  5. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Cited by:
  1. Halkos, George & Tsilika, Kyriaki, 2012. "Stability analysis in economic dynamics: A computational approach," MPRA Paper 41371, University Library of Munich, Germany.

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