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On agreements in a nonrenewable resource market: a cooperative differential game approach

Author

Listed:
  • Mathias Berthod

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

  • Hassan Benchekrounb

    (McGill University = Université McGill [Montréal, Canada], CIREQ - Centre interuniversitaire de recherche en économie quantitative)

Abstract

We consider a nonrenewable resource duopoly with economic exhaustion. We character- ize the set of Pareto eficient equilibria. We show that whenfirms are suficiently patient, there exists no Pareto eficient agreement that yields short-run gains with respect to the noncooperative equilibrium. Given a pair of stocks, there exists a unique interior Pareto eficient agreement. We characterize the set of stocks where a Pareto eficient agreement results in larger discounted sum of profits for both players. We show that social welfare under the interior Pareto eficient agreement is smaller than under non-cooperation, despite the gains from a more cost effective extraction of the resources under an agreement.

Suggested Citation

  • Mathias Berthod & Hassan Benchekrounb, 2019. "On agreements in a nonrenewable resource market: a cooperative differential game approach," Post-Print hal-02090945, HAL.
    • Handle: RePEc:hal:journl:hal-02090945
    DOI: 10.1016/j.jedc.2018.11.001
    as

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