The Kyoto Protocol: An Economic and Game Theoretic Interpretation

Center for Operations Research and Econometrics Working Paper No. 9925, CESifo Working Paper Series No. 229

24 Pages Posted: 13 Dec 1999

See all articles by Parkash Chander

Parkash Chander

National University of Singapore (NUS) - Department of Economics

Henry Tulkens

Catholic University of Louvain - Center for Operations Research and Econometrics (CORE)

Jean-Pascal Van Ypersele

Universite Catholique de Louvain

Stephanie Willems

Government of the Kingdom of Belgium - Task Force Developement Durable (TFDD)

Date Written: December 1999

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 %22business-as-usual%22, %22no regrets%22 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.

JEL Classification: C7, D74, F02, H4

Suggested Citation

Chander, Parkash and Tulkens, Henry and van Ypersele, Jean-Pascal and Willems, Stephanie, The Kyoto Protocol: An Economic and Game Theoretic Interpretation (December 1999). Center for Operations Research and Econometrics Working Paper No. 9925, CESifo Working Paper Series No. 229, Available at SSRN: https://ssrn.com/abstract=197068 or http://dx.doi.org/10.2139/ssrn.197068

Parkash Chander

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Henry Tulkens (Contact Author)

Catholic University of Louvain - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
+32 10 47 43 21 (Phone)
+32 10 47 43 01 (Fax)

Jean-Pascal Van Ypersele

Universite Catholique de Louvain ( email )

B-1348-Louvain-la-Neuve
Belguim
010-47-32-96 (Phone)
010-47-32-97 (Fax)

Stephanie Willems

Government of the Kingdom of Belgium - Task Force Developement Durable (TFDD) ( email )

Belgium

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