On agreements in a nonrenewable resource market: a cooperative differential game approach

Mathias Berthod and Hassan Benchekrounb
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Mathias Berthod: CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier
Hassan Benchekrounb: McGill University = Université McGill [Montréal, Canada], CIREQ - Centre interuniversitaire de recherche en économie quantitative

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Abstract: We consider a nonrenewable resource duopoly with economic exhaustion. We character- ize the set of Pareto eficient equilibria. We show that whenfirms are suficiently patient, there exists no Pareto eficient agreement that yields short-run gains with respect to the noncooperative equilibrium. Given a pair of stocks, there exists a unique interior Pareto eficient agreement. We characterize the set of stocks where a Pareto eficient agreement results in larger discounted sum of profits for both players. We show that social welfare under the interior Pareto eficient agreement is smaller than under non-cooperation, despite the gains from a more cost effective extraction of the resources under an agreement.

Keywords: cartel; cooperative games.; nonrenewable resources; oligopolies (search for similar items in EconPapers)
Date: 2019
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Published in Journal of Economic Dynamics and Control, 2019, 98, pp.23-39. ⟨10.1016/j.jedc.2018.11.001⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02090945

DOI: 10.1016/j.jedc.2018.11.001

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