How rapid should emission reduction be? A game-theoretic approach

Abstract

In this paper, we search for multistage realization of international environmental agreements. To analyze countries incentives and the results of their interactions, we mathematically represent players strategic preferences and apply a game-theoretic approach to make predictions about their outcomes. The initial decision on emissions reduction is determined by the Stackelberg equilibrium concept. We generalize Barrett s static emission model to a dynamic framework and answer the question how rapid should the emission reduction be? It appears that sharper abatement is desirable in the early term, which is similar to the conclusion of the Stern review. Numerical example demonstrates that abatement dynamics of the coalition and the free-rider differ when discounting of the future payoffs increases. We show that without incentives from external organizations or governments, such pollution reduction path can actually lead to a decline in the agreement s membership size.