Optimal drilling efforts and industry structure

Gustav Feichtinger; Luca Lambertini; George Leitmann; Stefan Wrzaczek; Gustav Feichtinger; Luca Lambertini; George Leitmann; Stefan Wrzaczek

doi:10.3934/environsci.2024030

AIMS Environmental Science

2024, Volume 11, Issue 4: 610-627. doi: 10.3934/environsci.2024030

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Optimal drilling efforts and industry structure

1.
Vienna University of Technology, Vienna, Austria
2.
Department of Economics and Alma Climate Research Institute, University of Bologna, Bologna, Italy
3.
University of Berkeley, Berkeley, CA, USA
4.
Corresponding author; International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria; and Wittgenstein Centre for Demography and Global Human Capital (IIASA, VID/OeAW, University of Vienna), Austria

Received: 30 March 2024 Revised: 19 March 2024 Accepted: 17 July 2024 Published: 31 July 2024

We consider a resource extraction model with the possibility of extending the resource stock by drilling efforts and an oligopolistic competition of symmetric firms. Assuming a hyperbolic market demand, we adopt the open-loop Nash equilibrium to analyze and compare the outcomes of a private vs a common resource pool. For both cases, the drilling efforts of the individual firms strongly depend on the market structure. For a low competition, the efforts increase the number of firms, and the opposite is true for a high competition. On the other hand, aggregate drilling efforts are different among the two types of pools and are opposite to Schumpeterian's hypothesis (i.e., they are either an inverted U-shaped (private pools) or strictly increasing (single pools)).
- nonrenewable resources,
- drilling,
- cournot nash equilibrium,
- differential games,
- oligopoly
Citation: Gustav Feichtinger, Luca Lambertini, George Leitmann, Stefan Wrzaczek. Optimal drilling efforts and industry structure[J]. AIMS Environmental Science, 2024, 11(4): 610-627. doi: 10.3934/environsci.2024030

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Abstract

We consider a resource extraction model with the possibility of extending the resource stock by drilling efforts and an oligopolistic competition of symmetric firms. Assuming a hyperbolic market demand, we adopt the open-loop Nash equilibrium to analyze and compare the outcomes of a private vs a common resource pool. For both cases, the drilling efforts of the individual firms strongly depend on the market structure. For a low competition, the efforts increase the number of firms, and the opposite is true for a high competition. On the other hand, aggregate drilling efforts are different among the two types of pools and are opposite to Schumpeterian's hypothesis (i.e., they are either an inverted U-shaped (private pools) or strictly increasing (single pools)).

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