Conference Agenda

We examine how leadership and commitment in oil markets affect climate damages, welfare, and the effectiveness of climate policy. Using a cartel–fringe model with renewables and climate damages, we compare Nash–Cournot, open-loop von Stackelberg, and feedback von Stackelberg equilibria. Our results show that leadership changes extraction patterns: when the cartel acts as a von Stackelberg leader, relatively more polluting extraction by the fringe is postponed, reducing climate damages relative to Nash–Cournot. However, the absence of commitment in feedback equilibria limits these gains and can even increase damages with respect to Nash-Cournot. We quantify these welfare losses and decompose them into a conservation and sequence effect. We show both for carbon taxes and renewable subsidies that small policy changes can trigger abrupt shifts in extraction regimes, causing large jumps in welfare and climate damages. Marginal changes in climate policies can have qualitatively different impacts on climate damages than non-marginal changes. These findings highlight that a von Stackelberg type of leadership can either amplify or reduce climate damages, and that policy design must account for discontinuous responses.

We study a time-consistent solution to the cartel-fringe model when the cartel acts as a von Stackelberg leader. In the process, we adress technical difficulties that often arise in continuous time dynamic game when the von Stackelberg leader uses feedback strategies. We characterize the equilibrium in the space of initial stocks and compare the resulting equilibrium with the Open-Loop Nash Cournot (OLNC) and Open-Loop von Stackelberg (OLSE) equilibria. Close comparison reveals that there is are regions where the feedback von Stackelberg equilibrium resembles the OLSE or the OLNC.

We examine firms' incentives to acquire rivals in an effort to monopolize an exhaustible resource sector, and the equilibrium industry structure that emerges, when the acquisition price is endogenous. Firms compete in quantities: each entity chooses its extraction policy, i.e. a Markovian strategy that allows extraction rate to depend on the vector of stocks. When firms' stocks are sufficiently small, in contrast to the static Cournot case, monopolization is a profitable strategy. The firm with the largest stock is the least likely to monopolize the industry. The lower the demand elasticity, the less likely that either extreme case, i.e. monopoly or the unmerged equilibrium, occurs. We also show that a carbon tax may deter monopolization and thereby speed up the extraction of fossil fuels.

Many resources are provided by ecological systems that are vulnerable to a sudden big loss of ecosystem services when exceeding a certain level of pollution. This leads to non-convexities in managing ecological systems. An ecological system is often also a common-pool resource and therefore vulnerable to suboptimal use resulting from non-cooperative behavior. An analysis requires methods to derive cooperative and non-cooperative solutions in managing these types of ecological systems. Such a game is a differential game that has two well-defined non-cooperative solutions, the open-loop and feedback Nash equilibria. This paper provides new numerical methods for solving open-loop and feedback Nash equilibria, for one dimensional and multiple-dimensional systems. The methods are applied to the lake game, which is the classical example for these types of problems. Especially, the two-dimensional feedback Nash equilibria for the lake game are a novelty of this paper. Such a Nash equilibrium can be close to the cooperative solution which has important policy implications.