NIRA-3: An improved MATLAB package for finding Nash equilibria in infinite games

A powerful method for computing Nash equilibria in constrained, multi-player games is created when the relaxation algorithm and the Nikaido-Isoda function are used together in a suite of MATLAB routines. This paper updates the MATLAB suite described in \cite{Berridge97} by adapting them to MATLAB 7. The suite is now capable of solving both static and open-loop dynamic games. An example solving a coupled constraints game using the suite is provided.Nikaido-Isoda function; Coupled constraints

Save now, prosper later : Increasing New Zealand’s savings rate - a preliminary dynamic CGE analysis

New Zealand, savings rate

Tariffs in New Zealand : The economic impacts of retaining tariffs in New Zealand A dynamic CGE analysis

The government announced in late 2009 that it would freeze tariffs at current levels until 2015 at the earliest. We examine the potential costs and benefits to the New Zealand economy of this policy decision using a recently-developed dynamic computable general equilibrium (CGE) model of the New Zealand economy. We find that the elimination of tariffs in New Zealand delivers a very small increase in GDP as allocative efficiency improves. However, the terms of trade effects associated with the tariff removal generate a very small welfare loss. We assess the sensitivity of the welfare results to key elasticity parameters.dynamic computable general equilibrium, New Zealand, tariffs, allocative efficiency, cost benefit analysis

Can planners control competitive generators?

Consider an electricity market populated by competitive agents using thermal generating units. Generation often emits pollution which a planner may wish to constrain through regulation. Furthermore, generators’ ability to transmit energy may be naturally restricted by the grid’s facilities. The existence of both pollution standards and transmission constraints can impose several restrictions upon the joint strategy space of the agents. We propose a dynamic, game-theoretic model capable of analysing coupled constraints equilibria (also known as generalised Nash equilibria). Our equilibria arise as solutions to the planner’s problem of avoiding both network congestion and excessive pollution. The planner can use the coupled constraints’ Lagrange multipliers to compute the charges the players would pay if the constraints were violated. Once the players allow for the charges in their objective functions they will feel compelled to obey the constraints in equilibrium. However, a coupled constraints equilibrium needs to exist and be unique for this modification of the players’ objective functions ..[there was a “to” here, incorrect?].. induce the required behaviour. We extend the three-node dc model with transmission line constraints described in [10] and [2] to utilise a two-period load duration curve, and impose multi-period pollution constraints. We discuss the economic and environmental implications of the game’s solutions as we vary the planner’s preferences.

The invisible polluter: Can regulators save consumer surplus?

Consider an electricity market populated by competitive agents using thermal generating units. Such generation involves the emission of pollutants, on which a regulator might impose constraints. Transmission capacities for sending energy may naturally be restricted by the grid facilities. Both pollution standards and trans mission capacities can impose several constraints upon the joint strategy space of the agents. We propose a coupled constraints equilibrium as a solution to the regulator’s problem of avoiding both congestion and excessive pollution. Using the coupled constraints’ Lagrange multipliers as taxation coefficients the regulator can compel the agents to obey the multiple constraints. However, for this modification of the players’ payoffs to induce the required behaviour a coupled constraints equilibrium needs to exist and must also be unique. A three-node market example with a dc model of the transmission line constraints described in [8] and [2] possesses these properties. We extend it here to utilise a two-period load duration curve and, in result, obtain a two-period game. The implications of the game solutions obtained for several weights, which the regulator can use to vary the level of generators’ responsibilities for the constraints’ satisfaction, for consumer and producer surpluses will be discussed.

Environmental Regulation of Firms that Experience Dynamic Inconsistency

The recent push for environmental regulation has invigorated the discussion of mechanism design and optimal taxation policy. Recent decades have also seen growing interest in behavioural economics and empirically based theory. In this thesis we take a step towards combining the two by asking how a regulator may correct an externality in situations where they have a time consistency problem. Time inconsistency is one of the notable developments of behavioural economics. It posits that an agent’s decisions do not remain consistent over time, which causes a utility loss if the agent cannot commit themselves to a particular course of action and stick to it. The solution to inconsistency problems is to precommit to a course of action and prevent future deviations from it. However, finding a mechanism to enable such precommitment is often problematic. A regulator who maximises welfare can have a time consistency problem because welfare will depend on the decisions of firm and households who may themselves be inconsistent. That inconsistency then propagates to the regulator’s decision and reduces the level of welfare that the regulator can reach. Alternatively, the regulator’s time consistency problem can be caused by non-stationarity in their time preferences. To reach the firstbest outcome the regulator must not only eliminate the environmental externality: they must also overcome their own time inconsistency problem. This thesis draws from the literature on strategic delegation to construct a taxation game in which the regulator can achieve the first best taxation regime without the need for external precommitment devices. We study a dynamic game where the regulator chooses a tax rate and the regulated monopolist chooses their price. We show that the Markov-perfect equilibrium price path of this game will replicate the first best plan. Our results holds for time inconsistency caused by both jump states and quasihyperbolic discounting