Abstract
We define a differential game of dynamic public investment with a discontinuous Markovian strategy space. The best response correspondence for the game is well-behaved: best responses exist and uniquely map almost all profiles of opponents’ strategies back to the strategy space. Our chosen strategy space thus makes the differential game well-formed, resolving a long-standing open problem and allowing the analysis of a wider class of differential games and Markov-perfect equilibria. We provide a ‘cookbook’ necessary and sufficient condition for constructing the best response, and demonstrate its use with a canonical model of non-cooperative mitigation of climate change. Our approach provides novel, economically important results: we obtain the entire set of symmetric Markov-perfect Nash equilibria, and demonstrate that the best equilibria can yield a substantial welfare improvement over the equilibrium which previous literature has focused on. Our methods do not require specific functional forms.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.