A game-theoretic multi-level optimization model for control of an international biofuel market

Abstract

This paper presents a game theoretic multi-level optimization model that aims to control the international biofuel market, driving it towards the desired scenario. The resulting model gives an interpretation of the different scenarios that could face real world energy systems. The upper level decision maker, an international body, aims to maximize the total amount of biofuel that is locally produced by each of the lower level decision makers, the countries involved, through setting appropriate adjustments on the international price. On the other hand, each country wants to minimize the cost that they individually incur from the purchase or production of biofuels in meeting their demand, subject to the price adjustments given by the national government. This interaction results in a Stackelberg game. A case study based on the international ethanol trading system is used to demonstrate the model.