Voluntary agreements as correlated equilibria of a subscription game: on the impact of a background regulatory threat

Anne-Sarah Chiambretto ()
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Anne-Sarah Chiambretto: CESAER

No 2017.23, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: We develop a n-player subscription game, modified so as to represent firms’ incentives to participate to an environmental Voluntary Agreement (VA). Specifically, the latter is assumed to be preemptive, i.e. to occur under the threat of a mandatory regulation. We suggest the use of a correlation device to strengthen firms’ participation decisions, formalized by the concept of correlated equilibrium (CE). The multiple pure and mixed Nash equilibria (NE) of the game without the correlation device are characterized. It is shown that the unique symmetric mixed NE can be implemented by using the correlation device. Furthermore, we find that such a device not only solves the problem raised by multiplicity of NE, but also ensures that a higher expected aggregate payoff is reached for any given level of threat, t. We thus provide a comparative efficiency analysis and study the impact of the threat stringency. Our general results are illustrated in a specified example of pollution abatement model.

Keywords: voluntary approaches; correlated equilibrium (search for similar items in EconPapers)
JEL-codes: C72 H41 Q53 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2017-10
New Economics Papers: this item is included in nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:fae:wpaper:2017.23

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