Regulation Games Between Government and Competing Companies: Oil Spills and Other Disasters

May Cheung () and Jun Zhuang ()
Additional contact information
May Cheung: Department of Industrial and Systems Engineering, University at Buffalo, Buffalo, New York 14260

Decision Analysis, 2012, vol. 9, issue 2, 156-164

Abstract: Oil spills are a characteristic risk of oil drilling and production. There are safety regulations set to reduce the risk of technological failures and human error. It is the oil company's decision to follow such laws and the government's decision to enforce them. Companies are balancing between safety efforts and production competition with other companies. To our knowledge, no previous research has considered the impact of competition in a government--company regulatory game. This paper fills the gap by modeling and comparing two games: a one-company game without competition and a two-company game with competition, both with the government as a regulator. The objectives of all players are to maximize their expected revenue and minimize their losses. Our results indicate that competition increases a company's threshold for risk and therefore requires stricter government regulation. These results could be generalized and applied to other industries including airline, nuclear power, and coal mining.

Keywords: game theory; pure and mixed strategies; regulation; competition between companies; oil spill; airline industry; nuclear power; coal mining; disaster; risk (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://dx.doi.org/10.1287/deca.1120.0233 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:9:y:2012:i:2:p:156-164

Access Statistics for this article

More articles in Decision Analysis from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().