On agreements in a nonrenewable resource market: a cooperative differential game approach
Résumé
We consider a nonrenewable resource duopoly with economic exhaustion. We character- ize the set of Pareto eficient equilibria. We show that whenfirms are suficiently patient, there exists no Pareto eficient agreement that yields short-run gains with respect to the noncooperative equilibrium. Given a pair of stocks, there exists a unique interior Pareto eficient agreement. We characterize the set of stocks where a Pareto eficient agreement results in larger discounted sum of profits for both players. We show that social welfare under the interior Pareto eficient agreement is smaller than under non-cooperation, despite the gains from a more cost effective extraction of the resources under an agreement.