Stochastic Switching Games and Duopolistic Competition in Emissions Markets
We study optimal behavior of energy producers under a CO_2 emission abatement program. We focus on a two-player discrete-time model where each producer is sequentially optimizing her emission and production schedules. The game-theoretic aspect is captured through a reduced-form price-impact model for the CO_2 allowance price. Such duopolistic competition results in a new type of a non-zero-sum stochastic switching game on finite horizon. Existence of game Nash equilibria is established through generalization to randomized switching strategies. No uniqueness is possible and we therefore consider a variety of correlated equilibrium mechanisms. We prove existence of correlated equilibrium points in switching games and give a recursive description of equilibrium game values. A simulation-based algorithm to solve for the game values is constructed and a numerical example is presented.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rida Laraki & Eilon Solan & Nicolas Vieille, 2003.
"Continuous-time Games of Timing,"
1363, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Andrzej Nowak, 2003. "On a new class of nonzero-sum discounted stochastic games having stationary Nash equilibrium points," International Journal of Game Theory, Springer, vol. 32(1), pages 121-132, December.
- Eilon Solan & Nicolas Vieille, 1998. "Quitting Games," Discussion Papers 1227, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Eran Shmaya & Eilon Solan, 2002. "Two Player Non Zero-Sum Stopping Games in Discrete Time," Discussion Papers 1347, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Solan, Eilon & Vieille, Nicolas, 2002.
"Correlated Equilibrium in Stochastic Games,"
Games and Economic Behavior,
Elsevier, vol. 38(2), pages 362-399, February.
- Aumann, Robert J, 1987.
"Correlated Equilibrium as an Expression of Bayesian Rationality,"
Econometric Society, vol. 55(1), pages 1-18, January.
- R. Aumann, 2010. "Correlated Equilibrium as an expression of Bayesian Rationality," Levine's Bibliography 513, UCLA Department of Economics.
- Robert J. Aumann, 2010. "Correlated Equilibrium as an expression of Bayesian Rationality," Levine's Working Paper Archive 661465000000000377, David K. Levine.
- Roger B. Myerson, 1984.
"Multistage Games with Communication,"
590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 1999. "Stopping Games with Randomized Strategies," Discussion Papers 1258, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Solan, Eilon & Vieille, Nicolas, 2002. "Correlated Equilibrium in Stochastic Games," Economics Papers from University Paris Dauphine 123456789/6019, Paris Dauphine University.
- Rene Carmona & Michael Ludkovski, 2008. "Pricing Asset Scheduling Flexibility using Optimal Switching," Applied Mathematical Finance, Taylor & Francis Journals, vol. 15(5-6), pages 405-447.
- Michael Ludkovski, 2008. "Financial Hedging Of Operational Flexibility," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(08), pages 799-839.
- Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
- Ramsey, David M. & Szajowski, Krzysztof, 2008. "Selection of a correlated equilibrium in Markov stopping games," European Journal of Operational Research, Elsevier, vol. 184(1), pages 185-206, January.
- Carriere, Jacques F., 1996. "Valuation of the early-exercise price for options using simulations and nonparametric regression," Insurance: Mathematics and Economics, Elsevier, vol. 19(1), pages 19-30, December.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1001.3455. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.