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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.

Suggested Citation

  • Christopher Harris & John Vickers, 1995. "Innovation and Natural Resources: A Dynamic Game with Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 418-430, Autumn.
  • Handle: RePEc:rje:randje:v:26:y:1995:i:autumn:p:418-430
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    Cited by:

    1. repec:wsi:igtrxx:v:16:y:2014:i:02:n:s0219198914400118 is not listed on IDEAS
    2. 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.
    3. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2011. "Would hotelling kill the electric car?," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 281-296, May.
    4. repec:spr:joptap:v:163:y:2014:i:2:d:10.1007_s10957-013-0462-x is not listed on IDEAS
    5. repec:pit:wpaper:534 is not listed on IDEAS
    6. Niko Jaakkola & Frederick van der Ploeg, 2017. "Non-Cooperative and Cooperative Climate Policies with Anticipated Breakthrough Technology," OxCarre Working Papers 190, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    7. 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 1-11.
    8. Reyer Gerlagh & Matti Liski, 2014. "Cake-Eating with Private Information," CESifo Working Paper Series 5050, CESifo Group Munich.
    9. Michielsen, Thomas O., 2014. "Strategic resource extraction and substitute development," Resource and Energy Economics, Elsevier, vol. 36(2), pages 455-468.
    10. Gerlagh, Reyer & Liski, Matti, 2008. "Strategic Resource Dependence," Economic Theory and Applications Working Papers 44222, Fondazione Eni Enrico Mattei (FEEM).
    11. Michielsen, T.O., 2013. "Strategic Resource Extraction And Substitute Development," Discussion Paper 2013-014, Tilburg University, Center for Economic Research.
    12. Gerlagh, Reyer & Liski, Matti, 2011. "Strategic resource dependence," Journal of Economic Theory, Elsevier, vol. 146(2), pages 699-727, March.

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