Time Consistent Pareto Solutions in Common Access Resource Games with Asymmetric Players

Abstract

In the analysis of equilibrium policies in a dierential game, if agents have different time preference rates, the cooperative (Pareto optimum) solution obtained by applying the Pontryagin's Maximum Principle becomes time inconsistent. In this work we derive a set of dynamic programming equations (in discrete and continuous time) whose solutions are time consistent equilibrium rules for N-player cooperative dierential games in which agents dier in their instantaneous utility functions and also in their discount rates of time preference. The results are applied to the study of a cake-eating problem describing the management of a common property exhaustible natural resource. The extension of the results to a simple common property renewable natural resource model in innite horizon is also discussed.cooperative solutions, dierential games, asymmetric players, resource games, time-inconsistency, heterogeneous discount rates