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

Author

Listed:
  • Anne-Sarah Chiambretto

    (CESAER)

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.

Suggested Citation

  • Anne-Sarah Chiambretto, 2017. "Voluntary agreements as correlated equilibria of a subscription game : on the impact of a background regulatory threat," Working Papers 2017.23, FAERE - French Association of Environmental and Resource Economists.
  • Handle: RePEc:fae:wpaper:2017.23
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    File URL: http://faere.fr/pub/WorkingPapers/Chiambretto_FAERE_WP2017.23.pdf
    File Function: First version, 2017
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    More about this item

    Keywords

    voluntary approaches; correlated equilibrium;

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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