All Symmetric Equilibria in Differential Games With Public Goods

Tinbergen Institute Discussion Paper 2020-020/II

47 Pages Posted: 15 May 2020

See all articles by Niko Jaakkola

Niko Jaakkola

University of Bologna

Florian Wagener

University of Amsterdam - Center for Nonlinear Dynamics in Economics and Finance (CeNDEF) - Department of Quantitative Economics; Tinbergen Institute

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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

Jaakkola, Niko and Wagener, Florian O.O., All Symmetric Equilibria in Differential Games With Public Goods (April 14, 2020). Tinbergen Institute Discussion Paper 2020-020/II, Available at SSRN: https://ssrn.com/abstract=3581228 or http://dx.doi.org/10.2139/ssrn.3581228

Niko Jaakkola (Contact Author)

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

Florian O.O. Wagener

University of Amsterdam - Center for Nonlinear Dynamics in Economics and Finance (CeNDEF) - Department of Quantitative Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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