New Horizons in Environmental Economics series
Chapter 12: Infinite Dynamic Games with Continuous Strategy Space
12. Inﬁnite dynamic games with continuous strategy space INTRODUCTION 12.1 In this chapter we analyze the global emission game characterized in Chapter 9 in the context of an inﬁnite time horizon.1 As argued in the introduction to Chapter 5, a supergame framework seems adequate for most IEAs due to the open-ended character of such agreements. In this chapter attention will be restricted to two countries only. Extensions to more than two countries are considered in Chapter 14. Apart from characterizing the set of subgame-perfect equilibria (SPE), weakly and strongly renegotiation-proof equilibria (WRPE and SRPE) and strongly subgame-perfect equilibria (SSPE) in the global emission game, attention will be given to the stability of the quota and tax bargaining equilibria derived in Chapter 11 and the auction equilibrium derived in Chapter 10.2 Thereby, we assume throughout this chapter that strategic proposals under the tax regime and during the auction process are absent if not explicitly mentioned. The properties of subgame-perfect equilibria will only be discussed when a comparison to the other equilibrium concepts is immediately possible (␦i →1 ᭙ iI) due to the conceptual inferiority of this concept. The structure of this chapter is similar to that of Chapter 7; that is, ﬁrst discount factors close to 1 are assumed (Section 12.2) and then the analysis is extended to discount factors strictly smaller than 1 (Section 12.3). Particular attention will be paid to restricted punishment proﬁles due to various ‘real world restrictions’ (Sub-sections 12.2.4 and 12.3.4). 12.2 12.2.1 DISCOUNT...
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