A differential game in a duopoly with instantaneous incentives

Abstract

In this paper, we study a differential game in which two competing firms exploit a public renewable resource that is relevant from a landscape point of view. We consider a policy maker that provides an instantaneous incentive to the firms in order to prevent the resource exhaustion during the whole extraction period, which coincides with the harvesting license period. We compute an open-loop Nash equilibrium of the differential game, showing that it coincides with a linear feedback Nash equilibrium. Finally, we compute the value of the incentive that leads to the maximization of social welfare considering the incentive both as a pure transfer and as a cost.Mathematics Subject Classification 91A23 · 49N90 · 91A80 · 91B76 · 91A10 JEL Classification C61 · C72 · C73 · D21 · D23 · D43 · D60 · H23 · Q20