75 Pages Posted: 23 Mar 2010 Last revised: 9 May 2013
Date Written: March 16, 2010
Exactly why the nations of the world have had difficulty in reaching agreement on reducing greenhouse gases that cause climate change is something of a puzzle. Although the future generations that will suffer the greater costs from climate change will probably be wealthier, the non-trivial risks that climate change will be catastrophic would seem to merit the collective purchase of some insurance in the form of greenhouse gas mitigation. Political economy, collective action, and psychological explanations all play a part in accounting for the international impasse, but all are incomplete. This article presents a simple game-theoretic model that illustrates the strategic interdependencies between countries, and how they affect prospects for international cooperation in reducing greenhouse gases. The model is a game of perfect information involving two players and three periods – the first two in which the players may undertake mitigation to reduce greenhouse gases, and a third in which the players will suffer the costs of climate change if mitigation is unsuccessful. The analysis of the dynamics of international climate negotiations is undertaken by relaxing various assumptions of the model and examining the outcomes.
The insights obtained from analysis of this model include: (i) early mitigation measures play an important role in affecting the decision environment for other countries; (ii) strategic behavior in attempting to extract side payments may lead to suboptimal failures to cooperate in mitigation; and (iii) adaptation and geo-engineering pose alternatives to mitigation that may render cooperation less likely.
Keywords: climate change
JEL Classification: C70, Q00
Suggested Citation: Suggested Citation