Groundwater extraction among overlapping generations: a differential game approach

Marta Biancardi (), Lucia Maddalena () and Giovanni Villani ()
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Marta Biancardi: University of Bari
Lucia Maddalena: University of Foggia
Giovanni Villani: University of Bari

Decisions in Economics and Finance, 2020, vol. 43, issue 2, No 7, 539-556

Abstract: Abstract Groundwater is a common resource that has been wasted for years. Today, we pay the consequences of such inappropriate exploitation and we are aware that it is necessary to realize policies in order to guarantee the use of this resource for future generations. In fact, the irrational exploitation of water by agents, nevertheless it is a renewable resource, may cause its exhaustion. In our paper, we develop a differential game to determine the efficient extraction of groundwater resource among overlapping generations. We consider intragenerational as well as intergenerational competition between extractors that exploit the resource in different time intervals, and so the horizons of the players in the game are asynchronous. Feedback equilibria have been computed in order to determine the optimal extraction rate of “young” and “old” agents that coexist in the economy. The effects of the withdrawal by several generations are numerically and graphically analyzed in order to obtain results on the efficiency of the groundwater resource.

Keywords: Differential games; Resource extraction; Overlapping generation; Feedback Nash equilibrium (search for similar items in EconPapers)
JEL-codes: C72 C73 J11 Q25 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10203-020-00292-w

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