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The Kyoto protocol: an economic and game theoretic interpretation

Parkash Chander (), Henry Tulkens (), Jean - Pascal van Ypersele and Stefane Willems
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Jean - Pascal van Ypersele: Institut d'Astronomie et de Géophysique Georges Lemaître (ASTR), Université catholique de Louvain (UCL), 1348 Louvain la Neuve, Belgium
Stefane Willems: Task Force Développement Durable (TFDD), Bureau fédéral du Plan, Brussels, Belgium

No 1999025, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Calling upon both positive and normative economics, we attempt to characterize the issues at stake in the current international negotiations on climatic change. We begin (Section 2) by reviewing the main features of the Protocol. Then (Section 3), we identify by means of an elementary economic model the main concepts involved: optimality, non cooperation, coalitional stability. We observe (Section 4) that "business-as-usual", "no regrets" and other domestic policies are alternative ways to conceive of the non cooperative equilibrium prevailing before the negotiations. Which one should be retained ? Data suggest that the prevailing situation is a mixed one, exhibiting characteristics of several of these policies. We then turn (Section 5) to interpreting the Protocol. While there is no firm basis to assert that the emission quotas chosen at Kyoto correspond to optimal emissions (although they are a step in the right direction), economic and game theoretical arguments are put forward to support the view that for achieving these emission quotas, trading ensures efficiency, as well as coalitional stability for the agreement provided it is adopted at the largest scale i.e. worldwide. Finally, it is argued in Section 6 that beyond the Kyoto Protocol,the achievement of coalitionally stable optimality at the world level is a real possibility with trading, provided agreement can be reached in the future as to appropriate reference emission levels, in particular as far as developing countries are concerned.

Date: 1999-04-01
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Working Paper: The Kyoto Protocol: an economic and game-theoretic interpretation (2002) Downloads
Working Paper: The Kyoto Protocol: An Economic and Game Theoretic Interpretation (1999) Downloads
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