Dynamic Cournot Games for Non-Renewable Resources

Thursday, May 17, 2012 - 2:15pm - 3:00pm
Keller 3-180
Michael Ludkovski (University of California)
We study the stochastic effect of resource
exploration in dynamic Cournot models of non-renewable resources, such as oil. We
consider a stochastic game between an exhaustible producer and a green
producer that has access to an inexhaustible but relatively expensive
source, such as solar power. Through exploration, the exhaustible producer can replenish reserves with new oil discoveries taking place according to a jump
process with intensity given by the exploration effort. This leads to
a study of systems of nonlinear first order delay ODEs. We derive
asymptotic expansions for the case of a small exploration success rate
and study the analogue of the Hotelling theorem in our game setting.
Time permitting, we will also present extensions, such as fixed exploration start-up costs and possibility for the green
producer to lower her production costs through technology R&D.

This is joint work with Ronnie Sircar (Princeton).
MSC Code: