Present-biased lobbyists in linear–quadratic stochastic differential games

Ali Lazrak (), Hanxiao Wang () and Jiongmin Yong ()
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Ali Lazrak: University of British Columbia
Hanxiao Wang: Shenzhen University
Jiongmin Yong: University of Central Florida

Finance and Stochastics, 2023, vol. 27, issue 4, No 6, 947-984

Abstract: Abstract We investigate a linear–quadratic stochastic zero-sum game where two players lobby a political representative to invest in a wind farm. Players are time-inconsistent because they discount the utility with a non-constant rate. Our objective is to identify a consistent planning equilibrium in which the players are aware of their inconsistency and cannot commit to a lobbying policy. We analyse equilibrium behaviour in both single-player and two-player cases and compare the behaviours of the game under constant and variable discount rates. The equilibrium behaviour is provided in closed-loop form, either analytically or via numerical approximation. Our numerical analysis of the equilibrium reveals that strategic behaviour leads to more intense lobbying without resulting in overshooting.

Keywords: Time inconsistency; Lobbying; Two-player zero-sum dynamic game; Linear–quadratic stochastic differential game; 91A15; 91B14 (search for similar items in EconPapers)
JEL-codes: C73 D72 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00780-023-00519-9

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