All Symmetric Equilibria in Differential Games With Public Goods
Tinbergen Institute Discussion Paper 2020-020/II
47 Pages Posted: 15 May 2020
There are 2 versions of this paper
All Symmetric Equilibria in Differential Games With Public Goods
All Symmetric Equilibria in Differential Games with Public Goods
Date Written: April 14, 2020
Abstract
We characterize the entire set of symmetric stationary Markov-perfect Nash equilibria (MPE) in a differential game of public good investment, using the canonical problem of climate change as an example. We provide a sufficient and necessary condition for MPE and show how the entire set of MPE is constructed. The equilibrium in continuous strategies, unique in our context, is Pareto-dominated by any other equilibrium. If a Pareto- undominated steady state exists, it is sustained by trigger-like strategies, with deviations above and below the steady state leading to different re- sponses. We extend the theory of differential games to deal with payoffs under discontinuous strategies. Our methods work under general functional forms.
JEL Classification: C73, Q54
Suggested Citation: Suggested Citation