Fossil Fuel Extraction and Investment in Backstop Technology: A Strategic Interaction (in Persian)

Hamideh Esfahani () and Shiva Shahmiri
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Hamideh Esfahani: Assistant Professor of Economics, Institute for Management and Planning Studies, Tehran, Iran.
Shiva Shahmiri: M.A. in Socio-Economic System Engineering, Institute for Management and Planning Studies, Tehran, Iran.

The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه), 2020, vol. 25, issue 1, 53-69

Abstract: In the economy of renewable resources, oil-importing countries seek to explore and develop backstop technologies to moderate their reliance on oil suppliers. On the other hand, oil-exporting countries should integrate the possibility of backstop technology inventions in their decisions regarding oil supply. Therefore oil-exporting countries and oil-importing-countries essentially have a relationship in the form of strategic interdependence. The present study considers a dynamic game between a buyer and a seller, where the seller determines the supply quantity and the buyer can decide to invest in a substitute which is a renewable source that is more favorable for both the buyer and the environment. The results show that in this closed-loop equilibrium, due to the heterogeneity between the fuel supplied by the seller and the alternative fuel developed by the buyer, the time of investing depends on the investment cost and the positive impact of substitute fuel on the environment. Nevertheless, the time of investing is more likely to occur before the resource exhaustion.

Keywords: Fossil Fuel; Backstop Technology; Strategic Interaction; Dynamic Competition; Closed-loop Equilibrium. (search for similar items in EconPapers)
JEL-codes: C72 O30 Q30 (search for similar items in EconPapers)
Date: 2020
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