An integrated economic model of fossil fuel energy planning for government and private sectors

ABSTRACT

Millions of dollars are annually allocated by governments to subsidize refined fuels, which results in fake low prices. Therefore, corrective measures such as privatization and gradual reduction of subsidies have been taken in some countries, including Iran. The aim of this paper is to propose an integrated economic model (IEM) of fossil fuel energy planning for government and private sectors. The economic production rates of government and private sectors are determined with respect to their prices, the total demand, and government subsidies. The objective, therefore, is to reach an optimum decision by applying the game theory approach which is the major method used for optimizing the mathematical economics. Both kinds of equilibrium including non-cooperative (Nash and Stackelberg equilibriums) and cooperative have been considered in game theory. Finally, the results of the models have been analyzed. Considering the results of analysis, the total profit has the maximum value if the components cooperate with each other.

KEYWORDS:

• Cooperative
• game theory
• integrated economic model (IEM)
• Nash
• Stackelberg