Frugals, Militants and the Oil Market

Billette de Villemeur, Etienne and Pineau, Pierre-Olivier (2019): Frugals, Militants and the Oil Market.

Abstract

The oil market has often been modeled as an oligopoly where the strategic players are producers. With climate change, a new sort of game appeared, where environmental militants play a significant role by opposing some projects, to contain oil production. At the same time, consumers continue to use increasing amounts of oil, independently of oil price fluctuations. Should we oppose oil projects, reduce demand or both? We investigate in this paper the double prisoner's dilemma in which individuals find themselves, with respect to oil consumption and their environmental stance towards the oil industry. We find that the collective outcome of such game is clearly better when a frugal behavior is adopted, without being militant. The Nash equilibrium, resulting from the individual strategies, leads by contrast to the worst possible outcome: high prices, high consumption and high environmental (negative) impact. An effective environmental action should avoid opposing oil supply sources (a costly militant act) and help consumers becoming more frugal.

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil production, Prisonner's dilemma, Militancy, Frugality
• Subjects: D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; D - Microeconomics > D7 - Analysis of Collective Decision-Making; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices

References

Breton B., Sbragia L. and Zaccour G. (2010) “A Dynamic Model for International Environmental Agreements”, Environmental and Resource Economics, vol. 45 (1) pp. 25–48.

EIA (2018) International Data. Washington DC: Energy Information Administration.

Greenpeace International (2018) Act. Amsterdam: Greenpeace International. Web page accessed on July 18, 2018. https://www.greenpeace.org/international/act/

Herfindahl, O. C. (1967) “Depletion and Economic Theory”, in: M. M. Gaffney (ed.), Extractive Resources and Taxation, Wisconsin University Press, Madison, WI, pp. 63–69.

IEA (2017) Key world energy statistics. International Energy Agency: Paris.

IEA (2018) Oil Market Report 2018. International Energy Agency: Paris.

IPCC (2014) Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

Jørgensen S., Martín-Herrán G. and Zaccour G. (2010) “Dynamic games in the economics and management of pollution”, Environmental Modeling & Assessment 15 (6), pp. 433-467.

Labandeira X., Lageaga J.M. and Lopez-Otero X. (2017), “A meta-analysis on the price elasticity of energy demand”, Energy Policy, 102 : 549-68.

Ngendakuriyo F. and Zaccour, G. (2017) “Should civil society organizations cooperate or compete in fighting a corrupt government?”, Mathematical Social Sciences, vol. 85, pp. 30-36.

Petrosjan L. and Zaccour G. (2003) “Time-consistent Shapley value allocation of pollution cost reduction”, Journal of economic dynamics and control, vol. 27 (3), pp. 381-398.

350.org (2018) About 350. New York: 350.org. Web page accessed on July 18, 2018. https://350.org/about/