https://macropaperwarehouse.com/authors/niko-jaakkola/Niko JaakkolaHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/markov-perfect-equilibria-in-differential-gameswith-an-application-to-climate-policy/https://macropaperwarehouse.com/papers/markov-perfect-equilibria-in-differential-gameswith-an-application-to-climate-policy/<p>This paper by Jaakkola and Wagener addresses a long-standing open problem in the theory of differential games: how to make Markov-perfect equilibria (MPE) well-defined when best-response policy functions are generically discontinuous in the state variable. The paper&rsquo;s primary contribution is methodological — it introduces discontinuous Markovian strategies into differential games and proves that, under this extension, (i) payoffs can always be computed and (ii) unique best responses exist for almost all strategy profiles of opponents. The authors then apply this framework to derive the entire set of symmetric MPE in a canonical non-cooperative climate mitigation model (van der Ploeg and de Zeeuw, 1992), finding welfare results that are quantitatively large and policy-relevant.</p>