Regime Switching in Dynamic Games with Hyperbolic Discounting
Jorge Navas – Universitat de Barcelona, Spain
Dynamic optimization problems with endogenous regime shifts have been widely studied in the literature. In the case of dynamic games, the characterization of optimal switching times as Markovian strategies presents some difficulties, derived from the fact that the strategies of one player over a regime also affect the timing of transition of the other player to a new regime. In this work, our aim is to extend previous results on regime shifts previously derived in the literature of dynamic games and non-constant discounting. The main results are illustrated with a resource extraction model with technology adoption. In this model, we analyse first the problem with one decision maker with time-inconsistent preferences and extend later the analysis to the case of two players.
(with Jesús Marín-Solano)