Flexibility mechanisms and credit discounting

Sungwhee Shin and Sang-Chul Suh

Environment and Development Economics, 2003, vol. 8, issue 2, 247-260

Abstract: We consider the international treaties on climate change as self-enforcing agreements. Applying non-cooperative game theory, we interpret the UN framework Convention on Climate Change as a Nash equilibrium outcome of an international abatement game where only domestic abatement is allowed. The Kyoto Protocol is a Nash equilibrium outcome of the game where flexibility mechanisms are introduced. We also show that credit discounting on foreign abatement can Pareto improve the welfare of all countries.

Date: 2003
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