[en] In this paper, we tackle a generic optimal regime switching problem where the decision
making process is not the same from a regime to another. Precisely, we consider a simple
model of optimal switching from competition to cooperation. To this end, we solve a twostage
optimal control problem. In the first stage, two players engage in a dynamic game
with a common state variable and one control for each player. We solve for open-loop
strategies with a linear state equation and linear-quadratic payoffs. More importantly, the
players may also consider the possibility to switch at finite time to a cooperative regime
with the associated joint optimization of the sum of the individual payoffs. Using theoretical
analysis and numerical exercises, we study the optimal switching strategy from
competition to cooperation. We also discuss the reverse switching.
Disciplines :
Quantitative methods in economics & management
Author, co-author :
Boucekkine, Raouf
Camacho, Carmen
ZOU, Benteng ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)
External co-authors :
yes
Language :
English
Title :
Optimal Switching from Competition to Cooperation: A Preliminary Exploration
Publication date :
2020
Main work title :
Dynamic economic problems with regime switches
Author, co-author :
Haunschmied, Josef
Kovacevic, Raimund
Semmler, Willi
Veliov, Vladimir
Publisher :
Springer
Collection name :
Dynamic Modeling and Econometrics in Economics and Finance 25
scite shows how a scientific paper has been cited by providing the context of the citation, a classification describing whether it supports, mentions, or contrasts the cited claim, and a label indicating in which section the citation was made.
Bibliography
Acemoglu, D., & Robinson, J. (2006). Economic origins of dictatorship and democracy. Cambridge University Press.
Boucekkine, R., Saglam, C., & Vallée, T. (2004). Technology adoption under embodiment: A two-stage optimal control approach. Macroeconomic Dynamics, 8(2), 250–271.
Boucekkine, R., Krawczyk, J., & Vallée, T. (2011). Environmental quality versus economic performance: A dynamic game approach. Optimal Control Applications and Methods, 32, 29–46.
Boucekkine, R., Pommeret, A., & Prieur, F. (2013). Optimal regime switching and threshold effects. Journal of Economic Dynamics and Control, 37, 2979–2997.
Boucekkine, R., Prieur, F., & Puzon, K. (2016). On the timing of political regime changes in resource-dependent economies. European Economic Review, 85, 188–207.
Cassiman, B., & Veugelers, R. (2002). R&D cooperation and cpillovers: Some empirical evidence from Belgium. The American Economic Review, 92, 1169–1184.
D’Aspremont, C., & Jacquemin, A. (1988). Cooperative and noncooperative R & D in duopoly with spillovers. The American Economic Review, 78, 1133–1137.
Di Bartolomeo, G., Engwerda, J., Plasmans, J., & van Aarle, B. (2006). Staying together or breaking apart: Policy-makers’ endogenous coalitions formation in the European Economic and Monetary Union. Computers & Operations Research, 33, 438–463.
Dockner, E., Jorgensen, S., Van Long, N., & Sorger, G. (2000). Differential games in economics and management. Cambridge University Press.
Kamien, M., Muller, E., & Zang, I. (1992). Research joint ventures and R&D cartels. The American Economic Review, 82, 1293–1306.
Mair, P. (1990). The electoral payoffs of fission and fusion. British Journal of Political Science, 20, 131–142.
Moser, E., Seidel, A., & Feichtinger, G. (2014). History-dependence in production-pollution-trade-off models: A multi-stage approach. Annals of Operations Research, 222, 455–481.
Saglam, C. (2011). Optimal pattern of technology adoptions under embodiment: A multi stage optimal control approach. Optimal Control Applications and Methods, 32, 574–586.
Stern, N. (2006). The economics of climate change: The Stern review. Cambridge University Press.
Suzumura, K. (1992). Cooperative and noncooperative R&D in an oligopoly with spillover. The American Economic Review, 82, 1307–1320.
Tomiyama, K. (1985). Two-stage optimal control problems and optimality conditions. Journal of Economic Dynamics and Control, 9, 317–337.
Tsur, Y., & Zemel, A. (2003). Optimal transition to backstop substitutes for nonre-newable resources. Journal of Economic Dynamics and Control, 27, 551–572.
Vallée, T., & Moreno Galbis, E. (2011). Optimal time switching from tayloristic to holistic workplace organization. Structural Change and Economic Dynamics, 22, 238–246.
Zampolli, F. (2006). Optimal monetary policy in a regime switching economy: The response to abrupt shifts in exchange rate dynamics. Journal of Economic Dynamics and Control, 30(1527), 1567.