Continuous-time public good contribution under uncertainty: a stochastic control approach

DOI10.1007/S00245-016-9337-5zbMATH Open1368.93784arXiv1307.2849OpenAlexW1787009247MaRDI QIDQ2013930FDOQ2013930

Frank Riedel, Jan-Henrik Steg, Giorgio Ferrari

Publication date: 10 August 2017

Published in: Applied Mathematics and Optimization (Search for Journal in Brave)

Abstract: In this paper we study continuous-time stochastic control problems with both monotone and classical controls motivated by the so-called public good contribution problem. That is the problem of n economic agents aiming to maximize their expected utility allocating initial wealth over a given time period between private consumption and irreversible contributions to increase the level of some public good. We investigate the corresponding social planner problem and the case of strategic interaction between the agents, i.e. the public good contribution game. We show existence and uniqueness of the social planner's optimal policy, we characterize it by necessary and sufficient stochastic Kuhn-Tucker conditions and we provide its expression in terms of the unique optional solution of a stochastic backward equation. Similar stochastic first order conditions prove to be very useful for studying any Nash equilibria of the public good contribution game. In the symmetric case they allow us to prove (qualitative) uniqueness of the Nash equilibrium, which we again construct as the unique optional solution of a stochastic backward equation. We finally also provide a detailed analysis of the so-called free rider effect.

Full work available at URL: https://arxiv.org/abs/1307.2849

zbMATH Keywords

[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=L%EF%BF%BD%EF%BF%BDvy+processes&go=Go L��vy processes]Nash equilibriumstochastic gamesirreversible investmentsingular stochastic controlfirst order conditions for optimalityfree-ridingpublic good contribution

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Stochastic games, stochastic differential games (91A15) Dynamic games (91A25) Stochastic models in economics (91B70) Optimal stochastic control (93E20)

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Cited In (8)

• Dynamic voluntary provision of public goods with uncertainty: a stochastic differential game model
• Nonzero-Sum Submodular Monotone-Follower Games: Existence and Approximation of Nash Equilibria
• Interbank lending with benchmark rates: Pareto optima for a class of singular control games
• Fully discrete schemes for monotone optimal control problems
• Stochastic streamflow and dissolved silica dynamics with application to the worst-case long-run evaluation of water environment
• Game of Variable Contributions to the Common Good Under Uncertainty
• Stochastic representation under \(g\)-expectation and applications: the discrete time case
• Mean-field games of finite-fuel capacity expansion with singular controls

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