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Credibility of Incentive Equilibrium Strategies in Linear-State Differential Games

Author

Listed:
  • G. Martín-Herrán

    (Universidad de Valladolid)

  • G. Zaccour

    (HEC Montréal)

Abstract

We characterize in this paper the credibility of incentive equilibrium strategies for the class of linear-state differential games. We derive a general condition for credibility and illustrate its use on two differential games taken from the literature of environmental economics and knowledge accumulation. We show that the proposed linear incentive strategies are not always credible. Further, we provide alternative nonlinear credible strategies which suggest that we should not stick only to linear incentive strategies, even in a simple class of differential games such as the linear-state one.

Suggested Citation

  • G. Martín-Herrán & G. Zaccour, 2005. "Credibility of Incentive Equilibrium Strategies in Linear-State Differential Games," Journal of Optimization Theory and Applications, Springer, vol. 126(2), pages 367-389, August.
    • Handle: RePEc:spr:joptap:v:126:y:2005:i:2:d:10.1007_s10957-005-4722-2
    DOI: 10.1007/s10957-005-4722-2
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    Cited by:

    1. Seierstad, Atle, 2011. "Pareto improvements of Nash equilibria in differential games," Memorandum 19/2011, Oslo University, Department of Economics.
    2. M. Kitti & H. Ehtamo, 2009. "Adjustment of an Affine Contract with a Fixed-Point Iteration," Journal of Optimization Theory and Applications, Springer, vol. 140(3), pages 477-497, March.
    3. Javier Frutos & Guiomar Martín-Herrán, 2015. "Does Flexibility Facilitate Sustainability of Cooperation Over Time? A Case Study from Environmental Economics," Journal of Optimization Theory and Applications, Springer, vol. 165(2), pages 657-677, May.
    4. Atle Seierstad, 2014. "Pareto Improvements of Nash Equilibria in Differential Games," Dynamic Games and Applications, Springer, vol. 4(3), pages 363-375, September.

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