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A differential game in a duopoly with instantaneous incentives

Luca Grilli () and Michele Bisceglia
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Michele Bisceglia: Università degli Studi di Bergamo

Decisions in Economics and Finance, 2017, vol. 40, issue 1, 317-333

Abstract: Abstract In this paper, we study a differential game in which two competing firms exploit a public renewable resource that is relevant from a landscape point of view. We consider a policy maker that provides an instantaneous incentive to the firms in order to prevent the resource exhaustion during the whole extraction period, which coincides with the harvesting license period. We compute an open-loop Nash equilibrium of the differential game, showing that it coincides with a linear feedback Nash equilibrium. Finally, we compute the value of the incentive that leads to the maximization of social welfare considering the incentive both as a pure transfer and as a cost.

Keywords: Open-loop Nash equilibrium; Feedback Nash equilibrium; Resource extraction; Finite time horizon; Incentives; 91A23; 49N90; 91A80; 91B76; 91A10 (search for similar items in EconPapers)
JEL-codes: C61 C72 C73 D21 D23 D43 D60 H23 Q20 (search for similar items in EconPapers)
Date: 2017
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