Quantcast
Viewing all articles
Browse latest Browse all 4063

Optimal Extraction and Taxation of Strategic Natural Resources: A Differential Game Approach. (arXiv:1611.02547v1 [q-fin.EC])

This paper studies the optimal extraction and taxation of nonrenewable natural resources. It is well known the market values of the main strategic resources such as oil, natural gas, uranium, copper,...,etc, fluctuate randomly following global and seasonal macro-economic parameters, these values are modeled using Markov switching L\'evy processes. We formulate this problem as a differential game where the two players are the mining company whose aim is to maximize the revenues generated from its extracting activities and the government agency in charge of regulating and taxing natural resources. We prove the existence of a Nash equilibrium and characterize the value functions of this differential game as the unique viscosity solutions of the corresponding Hamilton Jacobi Isaacs equations. Furthermore, optimal extraction and taxation policies that should be applied when the equilibrium is reached are derived. In addition, we construct and prove the convergence of a numerical scheme for approximating the value functions and optimal policies. A numerical example is presented to illustrate our findings.


Viewing all articles
Browse latest Browse all 4063

Trending Articles