1 research outputs found
Stochastic Switching Games and Duopolistic Competition in Emissions Markets
We study optimal behavior of energy producers under a CO_2 emission abatement
program. We focus on a two-player discrete-time model where each producer is
sequentially optimizing her emission and production schedules. The
game-theoretic aspect is captured through a reduced-form price-impact model for
the CO_2 allowance price. Such duopolistic competition results in a new type of
a non-zero-sum stochastic switching game on finite horizon. Existence of game
Nash equilibria is established through generalization to randomized switching
strategies. No uniqueness is possible and we therefore consider a variety of
correlated equilibrium mechanisms. We prove existence of correlated equilibrium
points in switching games and give a recursive description of equilibrium game
values. A simulation-based algorithm to solve for the game values is
constructed and a numerical example is presented.Comment: Revised version, 24 page