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Present-biased lobbyists in linear–quadratic stochastic differential games

Author

Listed:
  • Ali Lazrak

    (University of British Columbia)

  • Hanxiao Wang

    (Shenzhen University)

  • Jiongmin Yong

    (University of Central Florida)

Abstract

We investigate a linear–quadratic stochastic zero-sum game where two players lobby a political representative to invest in a wind farm. Players are time-inconsistent because they discount the utility with a non-constant rate. Our objective is to identify a consistent planning equilibrium in which the players are aware of their inconsistency and cannot commit to a lobbying policy. We analyse equilibrium behaviour in both single-player and two-player cases and compare the behaviours of the game under constant and variable discount rates. The equilibrium behaviour is provided in closed-loop form, either analytically or via numerical approximation. Our numerical analysis of the equilibrium reveals that strategic behaviour leads to more intense lobbying without resulting in overshooting.

Suggested Citation

  • Ali Lazrak & Hanxiao Wang & Jiongmin Yong, 2023. "Present-biased lobbyists in linear–quadratic stochastic differential games," Finance and Stochastics, Springer, vol. 27(4), pages 947-984, October.
    • Handle: RePEc:spr:finsto:v:27:y:2023:i:4:d:10.1007_s00780-023-00519-9
    DOI: 10.1007/s00780-023-00519-9
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Time inconsistency; Lobbying; Two-player zero-sum dynamic game; Linear–quadratic stochastic differential game;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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