Optimal Extraction and Taxation of Strategic Natural Resources: A Differential Game Approach
Tuesday, June 12, 2018 - 11:00am - 11:30am
This paper studies the optimal extraction and taxation of nonrenewable natural resources. It is well known that prices of strategic resources such as oil, natural gas, uranium, copper,..., etc, fluctuate randomly following global and seasonal macroeconomic parameters, those prices are modeled using Markov switching L\'evy processes. We formulate this problem as a differential game where the two players are the mining company whose aim is to maximize the revenues generated from its extracting activities and the government agency in charge of regulating and taxing natural resources. We prove the existence of a Nash equilibrium. The corresponding Hamilton Jacobi Isaacs equations are completely solved and the value functions as well as the optimal extraction and taxation rates are derived in closed-form. Numerical examples are presented to illustrate our findings.