Strategic entry and externalities in groundwater resources: Evidence from the lab

This study uses economics experiments to extend the literature on common-pool resources by focusing on entry investment behavior in a stylized, spatially explicit aquifer. The model consists of a two-stage game, where participants make an entry decision in the first stage and, if they choose to enter, decide how much resource to extract in the second stage. Results show that entry behavior and groundwater pumping decisions are significantly affected by the underlying spatial externalities of the resource. In instances where the impacts of groundwater use are spread across all resource users, we observe both a greater number of users choosing to use the resource and a higher intensity of use. The results support expectations from the model that groundwater management policies should focus on entry in addition to decisions related to the volume of pumping. The results also discern the interplay of entry with both hydrogeologic characteristics of the resource and the option to exit and reveal that the option to exit increases the intensity of extraction as well as initial entry rates.     

Oligopolistic Competition and New Technology Adoption under Uncertainty

The paper examines the adoption of a new technology in oligopoly, where there is ex ante uncertainty about variable costs of the new technology. Each firm can either adopt the new process by bearing some up-front investment or may continue to use the old one, after which firms play a Cournot market game. If in equilibrium both technologies are employed, more uncertainty about the new technology increases (decreases) the number of innovating firms and decreases (increases) the product price if the up-front investment is large (small). Our model applies readily to vertical integration if integrated firms neither buy nor sell the intermediate good on the market. However, if buying and selling is allowed, the number of integrated firms is independent of input price uncertainty.     

The effect of environmental uncertainty on the tragedy of the commons

We model a common pool resource game under environmental uncertainty, where individuals in a symmetric group face the dilemma of sharing a common resource. Each player chooses a consumption level and obtains a corresponding share of that resource, but if total consumption exceeds a sustainable level then the resource deteriorates and all players are worse-off. We consider the effect of uncertainty about the sustainable resource size on the outcome of this game. Assuming a general dynamic for resource deterioration, we study the effect of increased ambiguity (i.e., uncertain probabilities pertaining to the common resourceʼs sustainable size). We show that whereas increased risk may lead to more selfish behavior (i.e., to more consumption), increased ambiguity may have the opposite effect.     

Optimal emission-extraction policy in a world of scarcity and irreversibility

This paper extends the classical exhaustible-resource/stock-pollution model with irreversibility of pollution decay, meaning that after reaching some threshold there is no decay of the pollution stock. Within this framework, we answer the question how the potential irreversibility of pollution affects the extraction path. We investigate the conditions under which the economy will optimally adopt a reversible policy, and when it is optimal to enter the irreversible region. In the case of irreversibility it may be optimal to leave a positive amount of resource in the ground forever. As far as the optimal extraction/emission policy is concerned, several types of solutions may arise, including solutions where the economy stays at the threshold for a while. Given that different programs may satisfy the first order conditions for optimality, we further investigate when each of these is optimal. We show that it is never optimal for the economy to stay at the threshold for a while before entering the irreversible region. The optimality analysis is then illustrated by means of a calibrated example. To sum up, for any pollution level, we can identify a critical resource stock such that there exist multiple optima i.e. a reversible and an irreversible policy that yield exactly the same present value. For any resource stock below this critical value, the optimal policy is reversible whereas with large enough resources, irreversible policies outperform reversible programs.     

Optimal emission-extraction policy in a world of scarcity and irreversibility

This paper extends the classical exhaustible-resource/stock-pollution model with irreversibility of pollution decay, meaning that after reaching some threshold there is no decay of the pollution stock. Within this framework, we answer the question how the potential irreversibility of pollution affects the extraction path. We investigate the conditions under which the economy will optimally adopt a reversible policy, and when it is optimal to enter the irreversible region. In the case of irreversibility it may be optimal to leave a positive amount of resource in the ground forever. As far as the optimal extraction/emission policy is concerned, several types of solutions may arise, including solutions where the economy stays at the threshold for a while. Given that different programs may satisfy the first order conditions for optimality, we further investigate when each of these is optimal. We show that it is never optimal for the economy to stay at the threshold for a while before entering the irreversible region. The optimality analysis is then illustrated by means of a calibrated example. To sum up, for any pollution level, we can identify a critical resource stock such that there exist multiple optima i.e. a reversible and an irreversible policy that yield exactly the same present value. For any resource stock below this critical value, the optimal policy is reversible whereas with large enough resources, irreversible policies outperform reversible programs.     

Precautionary Principle and Robustness for a Stock Pollutant with Multiplicative Risk

The interest shown by policy makers and economists in the precautionary principle indicates the importance of model uncertainty in global warming policy. I show that through robust control, policy makers can implement the precautionary principle to regulate a stock pollutant, and I analyze its effect on expected steady state pollution taxes, stocks and welfare. The paper is broadly comprised of a theoretical part and an application to global warming policy. I find that: (1) an increase in either uncertainty about the model or risk about abatement cost increases expected steady state pollution taxes; (2) a robust policy is preferred for any level of model uncertainty and this preference increases for either higher model uncertainty or higher multiplicative risk and (3) the effect on expected steady state pollution taxes and stock of introducing model uncertainty is relatively small for high levels of model uncertainty. These results advocate using robust policies for a stock pollutant in the presence of model uncertainty.      

Uncertainty and the Timing of Automobile Purchases

Earlier studies have shown that lumpy investment models well characterize individual expenditures on durables, in particular automobiles. In this class of models, a higher level of uncertainty generally implies that the household should tolerate a larger imbalance between the actual stock of the durable and the target stock before adjusting it by buying and/or selling. Then, if the level of uncertainty increases, aggregate expenditures would temporarily fall. This hypothesis is tested by estimating an aggregate lumpy investment model on automobile expenditure data, using stock market volatility to proxy uncertainty. The result is that expenditures fall significantly as stock market volatility increases.     

Location choice under trade and environmental policies

In this paper, we use a game theoretic model to analyze the trade-off between the attractiveness of FDI and the environmental damage caused by production under asymmetric information. In the first stage, the domestic developing country reveals the level of import tariff and pollution tax under information uncertainty about the environmental damage that the foreign firm can cause. The foreign firm from a developed country decides where to locate afterwards with complete information about its own damage. Results show that the developing country can be better off encouraging FDI if and only if the marginal damage of pollution is sufficiently low. The optimal level of pollution taxes attracting FDI is higher than the marginal damage of pollution. However, the optimal pollution tax without FDI can be lower than the marginal damage of pollution with sufficiently high demand in the developing country.     

Dynamic asset allocation with ambiguous return predictability

We study an investor's optimal consumption and portfolio choice problem when he is confronted with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investor's aversion to model uncertainty. The investor deals with specification doubts by slanting his beliefs about submodels of returns pessimistically, causing his investment strategy to be more conservative than the Bayesian strategy. Unlike in the Bayesian framework, the hedging demand against model uncertainty may cause the investor's stock allocation to decrease sharply given a small doubt of return predictability, even though the expected return according to the VAR model is large. Over much of the parameter space, the robust strategy is very close to the Bayesian strategy with Epstein–Zin preferences and risk aversion chosen to match the same average portfolio holdings. This is true in particular when the IID model is unlikely and the dividend yield is low, as in recent years. However, differences in strategies can be substantial if the IID model is unlikely and the dividend yield is high.     

Irreversible investment with regime shifts

Under the real options approach to investment under uncertainty, agents formulate optimal policies under the assumption that firms’ growth prospects do not vary over time. This paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times. A value-maximizing investment policy is derived such that in each regime the firm's investment policy is optimal and recognizes the possibility of a regime shift. Under this policy, investment is intermittent and increases with marginal q. Moreover, investment typically is very small but, in some states, the capital stock jumps. Implications for marginal q and the user cost of capital are also examined.     

On Sustaining Cooperation without Public Observations

This paper examines a dynamic game in which each player only observes a private and imperfect signal on the actions played. Our main result is that in a repeated prisoner's dilemma where defections are irreversible (at least for a long enough period of time), patient enough players may achieve almost efficient outcomes. Dealing with models of imperfect private monitoring is difficult because (i) continuation games are games of incomplete information, hence they do not have the same structure as the original game. In particular, continuation equilibria are correlated equilibria. (ii) Players are typically uncertain about their opponents' past observations and actions, and they use their entire own private history to learn about these actions. As a result equilibrium strategies are in general nontrivial and increasingly complex functions of past observations. We bypass these difficulties by looking at correlated equilibria of the original game and find correlated equilibria in which the decision problem faced by each player remains the same over time. Journal of Economic Literature Classification Numbers: C72.     

Spatial Evolution of Social Norms in a Common-Pool Resource Game

We study the conditions for the emergence of cooperation in a spatial common-pool resource (CPR) game. We consider three types of agents: cooperators, defectors and enforcers. The role of enforcers is to punish defectors for overharvesting the resource. Agents are located on a circle and they only observe the actions of their two nearest neighbors. Their payoffs are determined by both local and global interactions and they modify their actions by imitating the strategy in their neighborhood with the highest average payoffs on average. Using theoretical and numerical analysis, we find a large diversity of equilibria to be the outcome of the game. In particular, we find conditions for the occurrence of equilibria in which the three strategies coexist. We also derive the stability of these equilibria. Finally, we show that introducing resource dynamics in the system favors the occurrence of cooperative equilibria.      

社会网络与新产品扩散协同演化研究

基于复杂网络视角,从微观层面对新产品扩散问题进行研究。结合心理学、社会学和博弈论,构建个体决策行为模型,并设计出一种智能学习方法实现消费者间的互动。在Anylogic上建立多Agent模型,考虑局部网络效应,设计网络演化规则,探究不同网络环境下网络结构和消费者决策共同演化规律,并分析产品效用参数、沟通交互强度、种子用户数量以及链接断开时间对共同演化的影响。研究发现：①尽管初始网络结构不同,消费者关系结构均能够以更高的聚集性和稳定性重构,且在小世界和无标度网络下,共同演化、彼此促进,从而有助于产品扩散;②尽管在高度数的无标度网络下共同演化会使扩散结果呈现出两面性,但在扩散过程中网络结构变化趋势一致;③网络效应强度提高能增大产品效用值,但过高和过低的效用值都将削弱网络演化对扩散的促进效果;④种子用户在达到一定规模后,不再影响最终扩散结果;⑤若共同演化能在最终时刻前达到稳定,链接断开时间则不影响扩散结果。     

Shared renewable resources and gains from trade under technology standards

Using a two‐country, two‐good model of international trade, we examine gains from trade and strategic interaction in resource management among countries that share renewable resources such as fishery stocks. Two goods are a resource good, which is the harvest of the shared stock, and some other good that may be thought of as manufactures. The productivity of the resource good depends on harvesting technology and the stock level. This paper focuses on technology standards (e.g., restrictions on fishing gears, vessels, areas, and time) over other methods for resource management because they are most commonly implemented in fisheries. Technology standards are modeled as a restriction on the harvesting technology; that is, under strict technology standards, firms exploit resources as if they are using inferior harvesting technology. We show that an opening up of trade may reduce the shared stock and cause steady‐state utility to decrease in a resource‐good importing country and increase in a resource‐good exporting country. Strikingly, when the shared stock is in jeopardy (a high demand for the harvest), steady‐state harvest is maximized after an opening up of trade by what we call multilateral resource management in this paper and both countries gain from trade.     

Renewable resource and capital with a joy-of-giving resource bequest motive

In this article we ask whether a privately owned natural renewable resource can be conserved and managed efficiently when households have a joy-of-giving resource bequest motive. We model an overlapping generations economy in which firms have access to a CES production technology combining the natural resource, physical capital and labor. Our results shed light on the interplay between the resource bequest motive and the substitutability/complementarity relationship between capital and the natural resource in the determination of the equilibrium propensity to use the resource. The mere existence of the bequest motive does not guarantee that the resource will be conserved in the long run. When the resource is highly substitutable with capital, the equilibrium actually never exhausts the resource stock whatever the intensity of the bequest motive. When the resource is a poor substitute for capital, the equilibrium preserves the resource only if the taste for bequeathing is strong enough. Be the economy in over-accumulation or in under-accumulation of the natural resource, it always increases aggregate consumption to run the stock of capital at a level lower than the efficiency level.     

A Stackelberg Game Model of Trade in Renewable Resources with Competitive Sellers*

We model international trade in renewable resources between a single buyer and competitive sellers as a Stackelberg differential game. The buyer uses unit and ad valorem tariffs to indirectly encourage conservation of the renewable resource under study. First, we show that the efficacy of these trade policy instruments in promoting conservation depends fundamentally on whether harvesting costs are stock dependent or independent. When harvesting costs are stock independent, the optimal open‐loop tariffs are dynamically consistent. In contrast, when harvesting costs are stock dependent, the optimal open‐loop tariffs are dynamically inconsistent. Secondly, we point out that whether the terminal value of the resource stock is higher with the stock independent or the stock dependent cost function cannot be resolved unambiguously. Thirdly, we show that it does not make sense for the buyer to use both tariffs simultaneously. Finally, we discuss the implications of these and other findings for renewable resource conservation in general.     

Dynamic Games of Environmental Policy in a Global Economy: Taxes versus Quotas

The effects of environmental policy on the global environment as an international public good with a stock externality and national welfare are examined in a model with trade in a polluting commodity. The welfare effects of environmental policy, decomposed into terms of trade, abatement cost, and environmental damage effects, induce governments to adopt a strategic use of their policy measures. In the absence of international cooperation on environmental policy, it is demonstrated that the emission tax game brings about larger strategic distortions than the emission quota game.     

Losses from competition in a dynamic game model of a renewable resource oligopoly

This article develops a dynamic game model of an asymmetric oligopoly with a renewable resource to reconsider welfare effects of increases in the number of firms. We show that increasing not only the number of inefficient firms but also that of efficient firms reduces welfare, which sharply contrasts to a static outcome. It is discussed that the closed-loop property of feedback strategies plays a decisive role in this finding.     

Cooperative and Non-Cooperative Exploitation of the Arcto-Norwegian Cod Stock

A two-agent model for the exploitation of the Arcto-Norwegian cod stock is developed to investigate the economic benefits that can be realized from the resource, and the effect of exploitation on stock sustainability under cooperation and non-cooperation. The two agents are identified in this study as a trawl fishery versus a coastal fishery. Unlike in Munro (1979), where conflicts in the management strategies of agents arise from differences in the perceptions of the discount factor, fishing effort costs, and consumer preferences, here conflicts arise mainly from the differences in fishing gear and grounds, and the age group of cod targeted by the two agents. Using a game theoretic framework, we show that given available data, the optimum optimorum is obtained under cooperation with side payments and no predetermined harvest shares, in which case the coastal fishery buys out the trawl fishery. However, sensitivity analysis shows that if the price premium assumed for mature cod is taken away, the trawl fishery takes over as the producer of the optimum optimorum.     

Threshold uncertainty in the private-information subscription game

We introduce threshold uncertainty, à la Nitzan and Romano (1990), into a private-values model of voluntary provision of a discrete public good. Players are allowed to make any level of contribution toward funding the good, which is provided if the cost threshold is reached. Otherwise, contributions are refunded. Conditions ensuring existence and uniqueness of a Bayesian equilibrium are established. Further restricting the threshold uncertainty to a uniform distribution, we show the equilibrium strategies are very simple, even allowing for any number of players with asymmetric distributions of values. Comparative statics with respect to changes in players' distributions are derived, allowing changes in both the intensity and the dispersion of values. For example, increased uncertainty, in the sense of mean-preserving spreads of players' distributions of values, increases equilibrium contributions. Finally, we show the equilibrium is interim incentive inefficient. The sharpness of our results greatly contrasts with the more qualified insights of earlier private-values models with known cost threshold, which relied on there being two symmetric players and generally exhibited multiple equilibria.