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 8: Environmental Effects of Consumption: An Approach Using DEA and Cost Sharing

Hans Keiding

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


8. Environmental effects of consumption: an approach using DEA and cost sharing Hans Keiding 1. INTRODUCTION In economic models of production and exchange, consumption is usually considered as the ultimate goal of all economic activity; allocations are compared according to the utility they give consumers. Therefore it seems reasonable that consumption activities should also be considered the ultimate causes of pollution and environmental decay. Consumption does not usually cause any direct damage to the environment; what pollutes is the production carried out in order to make this consumption possible. Therefore, in order to disclose the impact on the environment of different consumption activities we face the task of assigning an environmental impact, which has arisen elsewhere in the economy, to the different consumption activities, in principle down to the consumption of each single commodity. From a formal point of view, what we have here is a cost allocation problem (as considered, for example, by Young, 1994) with the additional feature that the ‘cost’ to be allocated (to consumption activities) is not a monetary cost but rather a vector of changes in environmental state, measured by the relevant indicators. Although a vector cost allocation problem is not qualitatively different from a standard cost allocation problem, some new features do arise, and since they have some relevance to the problem at hand, we shall consider them at some length in the text. First of all, in the context of vector cost allocation it makes sense to consider compositions...

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