Perspectives from Economics, Game Theory and Public Choice
New Horizons in Environmental Economics series
Edited by Christoph Böhringer, Michael Finus and Carsten Vogt
Chapter 2: Game Theory and International Environmental Cooperation: Any Practical Application?
2. Game Theory and International Environmental Cooperation: Any Practical Application? Michael Finus 1. INTRODUCTION The game-theoretical analysis of international environmental problems has received increasing attention in recent years. This is not surprising. Game theory analyzes the interaction between agents, formulates hypotheses about their behavior and predicts the fmal outcome. Therefore, game theory is particularly suited to analysing the incentive structure of international environmental problems. Central questions which can be investigated with this method are: Under which conditions will an international environmental agreement (IEA) be signed and ratified? On which reduction targets will the negotiators agree? How many and which countries will sign an IEA? Will the agreement be stable? Which measures may be used to stabilize an IEA? The game-theoretical literature has provided many insights into these questions in recent years. Many results have been obtained which help to explain the difficulties of establishing effective and efficient cooperation. However, game-theoretical approaches have also been criticized for ignoring too many practical problems and for being based on very specific assumptions. It has been argued that important aspects of international pollution problems have been neglected and results were not general and therefore ill-suited for policy analyses and recommendations. This chapter tries to qualify this criticism by laying out fundamental assumptions and important results and by pointing out those aspects which have to be treated in future research. We will proceed in five steps. In a first step we explicitly lay out the fundamental assumptions underlying the analysis of international environmental problems (Section...
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