Game Practice and the Environment

Game Practice and the Environment

The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development

Edited by Carlo Carraro and Vito Fragnelli

This book summarises the latest achievements of researchers involved in the application of game theory to the analysis of environmental matters. It provides an overview of different methods and applications, and gives the reader new insights on the solutions to complex environmental problems. The authors investigate various game theoretic approaches, including cooperative and non-cooperative game theory, and analyse both dynamic and static games. They illustrate the application of these approaches to global and local environmental problems, and present novel but effective tools to support environmental policy making. In particular, they focus on three important issues; climate negotiations and policy, the sharing of environmental costs, and environmental management and pollution control.

Chapter 3: Endogenous Strategic Issue Linkage in International Negotiations

Carlo Carraro and Carmeni Marchior

Subjects: economics and finance, environmental economics, game theory, environment, environmental economics


Carlo Carraro and Carmen Marchiori 1. INTRODUCTION In recent years, the non-cooperative approach to coalition formation has been adopted to analyse various economic problems (cf. Bloch, 1997; Carraro and Marchiori, 2002; Konishi et al., 1997; Ray and Vohra, 1996, 1997; Yi, 1997). When applying theoretical results on coalition formation to the provision of public goods – and in particular to global environmental agreements – the conclusion is often that no coalition forms at the equilibrium and that, if a non-trivial equilibrium coalition emerges, it is formed by a small number of players (Hoel, 1991, 1992; Carraro and Siniscalco, 1993; Barrett, 1994, 1997; Heal, 1994). This result is the consequence of the presence of strong free-riding incentives that become even stronger in the presence of leakage (that is, when reaction functions are non-orthogonal; cf. Carraro and Siniscalco, 1993). Different policy strategies have been proposed to increase the number of players who decide to join the equilibrium coalition. Transfers and issue linkage are probably the most popular proposed strategies, even though negotiation rules and treaty design can also be used to achieve equilibria in which large-sized coalitions form at the equilibrium (cf. Carraro, 2001). In this chapter, we focus on issue linkage. The basic idea of issue linkage is to design a negotiation framework in which countries do not negotiate only on one issue (for instance, the environmental issue), but force themselves to negotiate on two joint issues (for example, the environmental and another interrelated economic issue). Pioneering contributions on issue linkage are...

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