Perspectives from Economics, Game Theory and Public Choice
New Horizons in Environmental Economics series
Edited by Christoph Böhringer, Michael Finus and Carsten Vogt
Christoph Bohringer and Carsten Vogt Climate change due to anthropogenic greenhouse gases is one of the most challenging and complex environmental issues facing the world over the next century. Despite the uncertainty about the concrete impacts on the ecosystem, there is a broad consensus about the necessity for reducing greenhouse gas (GHG) emissions in order to stabilize the climate system. However, the world community has been struggling for nearly a decade to agree on an effective international climate policy strategy. In this book, we have tried to shed some light from different perspectives of economic research on the problems involved in establishing an international agreement for controlling climate change. Chapter 2 adopted a game-theoretic approach to discuss incentive problems for sovereign states that prevent them from joining and complying with international environmental agreements (IEAs). Due to the pure public good nature of limiting GHG emissions, countries face two major free-rider incentives that are closely linked to each other. Firstly, countries may want to free ride by not signing any IEA at all or by joining a coalition that carries a lower abatement burden than other countries. Within the framework of reduced stage game (RSG) models, it was shown that, whenever cooperation would be most beneficial, the effective equilibrium coalition achieves only little in terms of abatement and overall welfare gains. Secondly, countries may want to free ride by not complying with the obligations of agreements. Building on the concept of renegotiation proofhess within repeated games, the way the design of...
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