Markov Perfect Equilibria in Differential Games with Regime Switching Strategies

Ngo Long, Fabien Prieur, Klarizze Puzon and Mabel Tidball ()

No CE3S-03/14, CEEES Paper Series from European University at St. Petersburg, Department of Economics

Abstract: We propose a new methodology exploring Markov perfect equilibrium strategies in differential games with regime switching. We develop a general game with two players. Players choose an action that influences the evolution of a state variable, and decide on the switching time from one regime to another. Compared to the optimal control problem with regime switching, necessary optimality conditions are modified for the first-mover. When choosing her optimal switching strategy, this player considers the impact of her choice on the other player's actions and consequently on her own payoffs. In order to determine the equilibrium timing of regime changes, we derive conditions that help eliminate candidate equilibrium strategies that do not survive deviations in switching strategies. We then apply this new methodology to an exhaustible resource extraction game.

Keywords: differential games; regime switching strategies; technology adoption; non-renewable resources (search for similar items in EconPapers)
JEL-codes: C61 C73 Q32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2014-12-31
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Markov Perfect Equilibria in Differential Games with Regime Switching Strategies (2014)
Working Paper: Markov Perfect Equilibria in Differential Games with Regime Switching Strategies (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eus:ce3swp:0314

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