Analysing Government Decision Making in the South African Biofuels Industry: A Game Theoretic Approach

The production of biofuels in many countries is largely driven by the governmentstrategy and incentives that are in place. In South Africa the first round of thedevelopment of such a draft strategy took place in 2005 while the official stance onbiofuels was finalized in December of 2007. During the policy development processvarious governmental departments had strategic goals and targets that they all wererequired to achieve. The achievement of these strategic targets and goals is alsorisky and the various departments that have some form of involvement in the biofuelsindustry need to decide on how much risk they are willing to take. This articlesketches the game that the various governmental departments played as well as therisks that they were faced with when writing the Industrial Biofuels Strategy. Inestablishing a Nash Equilibrium and when comparing this to the current state ofaffairs in the industry an investigation is launched as to what has caused thegovernmental department to divert so strongly from this position. A variable Z isdefined and included in the model in order to explain the current state of affairs. TheZ variable is also analyzed further in order to bring some form of structure to thedebate on the government’s stance on the issue.