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Global Climate Games: How Pricing and a Green Fund Foster Cooperation

Peter Cramton () and Steven Stoft ()

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: The international game of cap and trade begins when countries choose their quantity targets, which are largely selected according to self interest. The analogous public-goods game, in which countries choose their abatement levels, has an uncooperative outcome. Compared to that, the Nash equilibrium of the cap-and-trade game shows that abatement can increase but that trade provides opportunities for uncooperative behavior. By contrast, a game in which all countries vote for a global quantity target or a global price target can lead to a highly cooperative choice of target. However, the assignment of responsibilities for a global quantity target stymies implementation of a global cap. The global-price-target game largely overcomes this barrier because a uniform global price provides a focal point for cooperation. However low-emission countries apparently prefer a much lower global-price than more prosperous countries unless a Green Fund is implemented. A game that couples such a fund to the global price target can largely overcome this barrier to cooperation. We describe such a game along with its equilibrium outcome, which promises to be inexpensive and cooperative.

Keywords: global warming; climate change; climate treaty; cap and trade; carbon tax; carbon price; public goods (search for similar items in EconPapers)
JEL-codes: Q54 Q56 Q58 H41 D78 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2012, Revised 2012
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Published in Economics of Energy & Environmental Policy, 1:2, March 2012

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