Investment, uncertainty, and production games

Flam SD & Ermoliev Y (2009). Investment, uncertainty, and production games. Environment and Development Economics 14 (1): 51-66. DOI:10.1017/S1355770X08004579.

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Abstract

This paper explores a few cooperative aspects of investments in uncertain, real options. By hypothesis some production commitments, factors, or quotas are transferable. Cases in point include energy supply, emission of pollutants, and harvest of renewable resources. Of particular interest are technologies or projects that provide anticorrelated returns. Any such project stabilizes the aggregate proceeds. Therefore, given widespread risk aversion, a project of this sort merits a bonus. The setting is formalized as a two-stage, stochastic, production game. Absent economies of scale, such games are quite tractable in analysis, computation, and realization. A core imputation comes in terms of shadow prices that equilibrate competitive, endogenous markets. Such prices emerge as optimal dual solutions to coordinated production programs, featuring pooled commitments, or resources. Alternatively, the prices could result from repeated exchange.

Item Type: Article
Research Programs: Integrated Modeling Environment (IME)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:42
Last Modified: 31 Oct 2016 15:03
URI: http://pure.iiasa.ac.at/8875

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