Propagation of carbon price shocks through the value chain: a mean-field game of defaultsPeter Tankov - ENSAE, Institute Polytechnique de Paris

We develop a mean-field game framework to study carbon pricing in a multi-sector economy with defaultable firms.  In each sector, firms produce a homogeneous good and choose inputs—labor, emissions, and intermediate goods—while taking endogenous prices as given and optimally deciding default timing.  The economy is modeled as a system of coupled optimal stopping mean-field games, which admits a linear programming formulation characterizing Nash equilibria via population measure flows.  We prove existence and uniqueness of the equilibrium price system.  Numerical experiments with CES technologies highlight substitution effects and significant cross-sector spillovers driven by carbon price shocks.

Zoom link:     texastech.zoom.us/j/3067000354?
Meeting ID:   306 700 0354
Passcode:       TTUMF