Although the possibility of multiple nonlinear equilibria in linear-quadratic differential games is extensively discussed, the literature on models with multiple linear Markov perfect equilibria (LMPEs) is scarce. Indeed, almost all papers confined to a single state (the vast majority of the application of differential games to economic problems) find a unique LMPE. This paper explains this finding and derives conditions for multiplicity based on the analysis of the phase plane in the state and the derivative of the value function. The resulting condition is applied to derive additional pathways different from the (two) known ones. All these examples, more precisely, their underlying pathways or the resulting outcomes, contradict usual assumptions in economic models. However, by extending the state space, we provide an economic setting (learning by doing) that gives rise to multiple LMPEs.

Unincentivized measurement instruments of risk attitudes suffer from several weaknesses. One is that respondents do not consistently assign themselves to their respective risk preference categories. In particular, they are subject to a central tendency bias and classify themselves as risk-neutral when they are in fact not. We test the robustness of the central tendency bias in lottery-type questions for risk evaluations and offer an explanation of why respondents behave in a way that contradicts plausible utility models. We explore a wide range of alternative influencing factors, including careless responding, stake levels, deviations in expected value, the cognitive abilities of the respondents, self-assessment of risk attitudes, and monetary incentives. We find that careless responding and higher stakes increase the central tendency bias in risk assessment, while cognitive capabilities and extreme risk self-assessments (both positive and negative) decrease the bias. Deviations in expected value and incentives do not affect the bias. Our study further points to the fact that such problems have to be taken care of explicitly when eliciting risk attitudes.

We investigate intertemporal strategic interactions if monopolies, cartels, or oligopolies benefit from firm internal as well as external learning by doing. Our analysis is carried out for a linear learning cost curve, which allows the derivation of the linear Markov perfect equilibrium (LMPE). The model yields surprising properties: First and highly policy-relevant is the non-existence of equilibria except for very few firms and sufficiently large spillovers, although the corresponding open loop as well as the collusive (cartel) equilibria and the monopoly solution exist. This analytical result corroborates the empirical evidence on the many bankruptcies in the solar photovoltaic market. Second, from a policy perspective, learning could justify a restriction on the number of competitors in the marketplace, in particular if it is very effective. Third, surprising and of theoretical interest is that the linear (and symmetric) Markov perfect equilibrium need not be unique, which is a novel outcome for meaningful economic models.

This paper describes the process of capital accumulation subject to the following characteristics: (i) convex returns to (human) capital and (ii) the need to self-finance investments. Our setup is applicable to some peculiarities in the arts, sports and science, inter alia, coined the Matthew effect in Merton (1968) and explains, e.g., why prominent researchers get disproportional credit for their work. The potential young artist's (athlete's or scientist's) optimal strategies include quitting, or continuing and even expanding one's human capital in the respective profession. Both outcomes are separated by a threshold level in human capital. In addition, we find that it can be optimal to stay in business although consumption falls and stays at the subsistence level forever (we call this outcome a Sisyphus point ). This possibility is also interesting from a theoretical point-of-view, as the optimal control problem may turn abnormal , i.e., the objective does not enter the Hamiltonian. (c) 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)

In 2015 it was discovered that Volkswagen had manipulated the exhaust emissions of its (diesel) cars. Since then, numerous other automotive car manufacturers were strongly suspected to violate against the same emission standards. This paper investigates how and why firms (monopoly, cartel and duopoly) engage in cheating, more precisely, promising attributes that are actually not part of the product. Firms make claims in order to better market their product but risk damaging their future reputation. The upshot of the paper is the stark difference between open loop and Markov perfect oligopolistic equilibrium outcomes. More precisely, the latter mitigates cheating substantially even below the levels attained by monopolies and cartels (unless consumers have a very short memory), which is contrary to the outcome in the limiting static version of the game. Therefore, revealing the true state (e.g., by mandating strict inspections) could force firms to use this information and play in Markov instead of open loop strategies.

This paper investigates strategic trade policies as a response to negative externalities linked to climate engineering. Parties negatively affected, or which only perceive damages, may react to geoengineering by deploying trade sanctions, i.e. the imposition of tariffs. By introducing a dynamic trade model, we show that geoengineering-averse countries have an incentive to implement or increase existing tariffs when the other country uses geoengineering. Our contribution is to highlight that potential consequences on trade should be taken into account before climate engineering techniques are applied. This is particularly crucial in our globalized world since a successful climate policy demands large scale if not global cooperation.