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A mean field game model of green economy

Author

Listed:
  • Jingguo Zhang

    (National University of Singapore)

  • Lianhai Ren

    (National University of Singapore)

Abstract

In this paper, we introduce a Mean Field Game (MFG) model of green economy and establish a related green insurance framework for insurers. Firstly, we construct an MFG of the industrial market featuring a mix of green energy-efficient companies and traditional brown companies. Each company in the industrial market needs to decide its energy consumption and will face a trade-off between investing in the development of green technologies and financial benefits, while the energy price is related to the average energy efficiency of all companies. They will also face some environmental risks, which will be hedged by green insurance. We use the fixed-point iterative algorithm to solve a Nash equilibrium of the MFG and get the firm value dynamics for the representative green and brown companies. Then, we construct a basic model for the insurer surplus process involving the green insurance premium and reinsurance strategies. We further extend the model to account for the insurer’s investment activities in fixed-income projects and green and brown indexes in the financial market. We use the deep learning method to solve the optimal reinsurance and investment strategies for insurers.

Suggested Citation

  • Jingguo Zhang & Lianhai Ren, 2024. "A mean field game model of green economy," Digital Finance, Springer, vol. 6(4), pages 657-692, December.
    • Handle: RePEc:spr:digfin:v:6:y:2024:i:4:d:10.1007_s42521-024-00118-z
    DOI: 10.1007/s42521-024-00118-z
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    More about this item

    Keywords

    Mean field game; Green economy; Green insurance; Deep learning method;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • G2 - Financial Economics - - Financial Institutions and Services
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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