Voluntary agreements as correlated equilibria of a subscription game

Anne-Sarah Chiambretto ()
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Anne-Sarah Chiambretto: CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

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Abstract: I develop a subscription game, modified so as to represent firms' incentives to participate to an environmental Voluntary Agreement (VA). Specifically, I assume the VA is preemptive, i.e. it occurs under the threat of a mandatory regulation. I suggest the use of a correlating device to strengthen firms participation, formalized by the concept of correlated equilibrium (CE). I characterize the multiple pure and mixed Nash equilibria (NE) of the game without the correlating device. I 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. I provide a full comparative efficiency analysis after the optimal CE is characterized, and study the impact of the threat stringency. Finally, I illustrate the general results in a specified example of pollution abatement model.

Date: 2018-11-09
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Published in CEE-M Environmental Economics Seminar, CEE-M. Centre d'Economie de l'Environnement - Montpellier, Nov 2018, Montpellier, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02152605

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