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Published Year: 2001
Survey/Program(s): N/A
Catalog: Economic Working Paper
WP Number: WP-350
Publication Status / Disposition: See Journal of Economic Dynamics and Control, Vol. 26, Issue 9-10, August 2002, pp. 1397-1416.
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An Anticipative Feedback Solution for the Infinite‐Horizon, Linear‐Quadratic, Dynamic, Stackelberg Game
Abstract
This paper derives and illustrates a new suboptimal-consistent feedback solution for an infinite-horizon, linear-quadratic, dynamic, Stackelberg game. This solution lies in the same solution space as the infinite-horizon, dynamic-programming, feedback solution but puts the leader in a preferred equilibrium position. The idea comes from Kydland (1977) who suggested deriving a consistent feedback solution for an infinite-horizon, linear-quadratic, dynamic, Stackelberg game by varying the coefficients in the player's linear constant-coefficient decision rules. Here feedback is understood in the sense of setting a current control vector as a function of a predetermined state vector. The proposed solution is derived for discrete- and continuous-time games and is called the anticipative feedback solution. The solution is illustrated with a numerical example of a duopoly model.