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Dynamic Games and Applications

Erschienen in:

01.10.2015

Option Fund Market Dynamics for Threshold Public Goods

verfasst von: Arnaud Z. Dragicevic

Erschienen in: Dynamic Games and Applications | Ausgabe 1/2017

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Abstract

Economic agents have the possibility to fund the protection of environmental public goods, such as natural ecosystems and biodiversity, facing unknown risks of collapse, which could help to back them up. On the base of the prediction markets, which meet with a degree of success since their introduction, we propose an evolutionary model of an option fund market for the threshold environmental public goods. We consider population dynamics of agents distributed into proportional fair-share contributors and free riders. The model outcomes show that the public goods could be provided when the agents exchanging option contracts are equally divided into buyers and sellers. This result only holds for a specific social belief over the probability of the public good safeguard, the strict equality between bids and asks, and the equality of all payoffs. Otherwise, providing public goods through option markets turns out to be inoperative.

Vorheriger Artikel Extremal Shift Rule for Continuous-Time Zero-Sum Markov Games

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We ignore the case of \(\gamma (1-p)\) on purpose. Indeed, contrary to \(\gamma \) and q, the probability p of species safeguard depends on whether the agent decides to contribute to the public good. This bet is under her control.

Indeed, both the option value and the risk of payoff loss preexist to the market funding.

From the Binomial sampling, we have \(\sum _{m=0}^{M-1} (m+1)^{-1}\left( {\begin{array}{c} M-1 \\ m \\ \end{array}} \right) z^{m}(1-z)^{M-1-m}\) \(=\sum _{m=1}^{M-1} M^{-1}\left( {\begin{array}{c} M \\ m+1 \\ \end{array}} \right) z^{m}(1-z)^{M-1-m}\) \(=(Mz)^{-1}\left[ {\sum _{m=0}^M \left( {\begin{array}{c} M \\ m \\ \end{array}} \right) z^{m}(1-z)^{M-m}} \right] \) and finally \([1-(1-z)^{M}](Mz)^{-1}\).

Quasi-null option prices imply that the payoff from salvaging wealth at the market price equals the proportional fair share. This result is consistent with the results of Plummer [26], who shows that if a project attainment fails to change the probability of supply of the public good (and thus remains uncertain), option price is zero.

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Titel: Option Fund Market Dynamics for Threshold Public Goods
verfasst von: Arnaud Z. Dragicevic
Publikationsdatum: 01.10.2015
Verlag: Springer US
Erschienen in: Dynamic Games and Applications / Ausgabe 1/2017
Print ISSN: 2153-0785
Elektronische ISSN: 2153-0793
DOI: https://doi.org/10.1007/s13235-015-0172-0

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