Time-Consistent Emission Reduction in a Dynamic Leader-Follower Game
IIn this paper, we search for multistage realization of international environmental agreements (IEAs). To analyze countries incentives and results of their interactions, we mathematically represent players’ strategic preferences and apply game-theoretic approach to make predictions about their outcomes. Initial decision on emission reduction is determined by the Stackelberg equilibrium concept. We generalize Barrett’s static ‘emission’ model to a dynamic framework and answer the question ‘how fast should the emission reduction be?’ It appears that sharper abatement is desirable in the early terms, which is similar to the conclusion of the Stern review. As discounting of the future payoffs becomes larger, more immediate reductions should be undertaken by the agreement parties. We show that without incentives from external organizations or governments, such depollution path can lead to a decline of the membership size.
KeywordsEmission Reduction Discount Factor International Environmental Agreement Stable Coalition Stackelberg Equilibrium
Unable to display preview. Download preview PDF.
Funding from MTT Agrifood Research Finland and the COMAS Graduate School of the University of Jyväskylä is gratefully acknowledged.
- 1.d’Aspremont, C., Jacquemin, A., Weymark, J.A., Godszeweiz, J.: On the Stability of Collusive Price Leadership. Can. J. Econ. 16, 17–25 (1983)Google Scholar
- 3.Cline, W.R.: The Economics of Global Warming, Washington, Institute for International Economics (1992)Google Scholar
- 5.Barrett, S.: Self-Enforcing International Environmental Agreements. Ox. Econ. Pap. 46, 878–894 (1994)Google Scholar
- 6.Barrett, S.: Environment and Statecraft: The Strategy of Environmental Treaty-Making, Oxford University Press, Oxford (2003)Google Scholar
- 7.Dementieva, M., Pavlova, Y.: Emission Trading as an Expanding Mechanism of International Environmental Agreement. In: Neittaanmäki P., Périaux J., Tuovinen T. (eds.) Evolutionary and Deterministic Methods for Design, Optimization and Control, pp. 457–462, CIMNE, Barcelona, Spain (2007)Google Scholar
- 10.Finus, M.: Game Theory and International Environmental Cooperation (New Horizons in Environmental Economics), Edward Elgar Publishing Ltd., UK (2001)Google Scholar
- 11.Hoel, M.: International Environmental Conventions: The Case of Uniform Reductions of Emissions. Env. Res. Econ. 2(3), 141–159 (1992)Google Scholar
- 12.Kelly, D.L., Kolstad, C.D.: Integrated Assessment Models For Climate Change Control. In: Folmer H., Tietenberg T. (eds.) International Yearbook of Environmental and Resource Economics 1999/2000: A Survey of Current Issues, Cheltenham, Edward Elgar, UK (1999)Google Scholar
- 16.Pavlova, Y.: Multistage Coalition Formation Game of a Self-Enforcing International Environmental Agreement. Dissertation, Jyväskylä Studies in Computing 94 (2008)Google Scholar
- 20.Stern, N.: The Economics of Climate Change: The Stern Review, Cambridge University Press, Cambridge, UK (2007)Google Scholar
- 21.Zakharov, V.: Regularization and Time-Consistency of Dynamic Solutions in Hierarchical Differential Games, (Russian). Vestnik of Leningrad University 1,2(8), 45–53 (1988)Google Scholar
- 23.Weikard, H.-P., Dellink, R.: Sticks and Carrots for the Design of International Climate Agreements with Renegotiations. Nota di lavoro 26.2008 (2008)Google Scholar